Collections

5 Debt collection trends you can't ignore in 2023

Stay current - check out 2024's top debt collection trends post right here!

Laptop with a chart on the screen and a vase with climbing vine

It’s already time for an update on 2023's top debt collection trends.

Looking around 2023, here’s what’s happening and coming in consumer finance collections:

1. Omnichannel is omnipresent

A survey our partner TCN conducted with OnePoll last year showed the top three ways consumers wanted to communicate with customer service:

  • 49% Talking to a live agent by phone
  • 47% Email
  • 45% Online chat with a live agent

While that person-to-person interaction is still on top, the slim margin separating it from other options indicates the importance of omnichannel investments for collections.

Kristyn Leffler, Senior Director, Digital Strategies, at Resurgent Capital Services agrees. Asked by insideARM for her 2023 industry predictions, she said:

"Macroeconomic woes will trickle down to the collection agency level as clients pass down both the margin pressure and increased delinquency volume. The agencies best positioned to withstand this dual pressure have spent the past few years investing in technology and efficiently collect 24/7/365 across all channels."

Machine learning and AI aren’t taking over consumer desire for human connection, but they can support interactions and provide options when people aren’t available.

Speaking of which…

2. Human resources woes are sticking around

Unemployment rates remain incredibly low - 3.6% in the most recent Bureau of Labor Statistics report - meaning hiring isn’t getting any easier. And if consumers still prefer talking to a live agent as mentioned above, debt collectors still need people.

Because of how hard staffing shortages have been hitting recovery teams, Leffler’s prediction about which agencies will remain competitive is actually good news. 

Hiring and retaining top collections agents webinar information - click image for more information

According to Gitnux, “Agencies that invested in technology and laid off 20% of their collector staff saw an average 9% increase in productivity of the remaining agents.”

But agencies don’t need to lay off staff to achieve that increase - many are already operating with a lean team.

That means technology that can support:

  • Doing more with fewer agents
  • Reducing ramp time
  • Slashing after-call work to increase productivity
  • Eliminating dull administrative tasks to improve job satisfaction
  • Shifting tasks like compliance and QA to automated workflows 

…is a no-brainer for success despite hiring and retention issues in 2023.

Side note: Join us for a can’t-miss webinar on hiring and retaining top collections agents in this tough market.

3. The CFPB never rests

Under Director Rohit Chopra, the CFPB has been busy, and the increased focus on regulations means 

We heard Director Chopra speak at CBA Live, where he talked about new and upcoming regulations and where it applies.

“As a general matter, I put much more emphasis on non-bank supervision. We’re not forgetting about the banks, but much more [focus] on non-bank supervision and especially consumer finance infrastructure and these players,” he said.

That means collections and accounts receivables need to buckle up (along with everyone else in consumer finance). 

Reg F, the advisory opinion on fees, the proposed “repeat offenders” registry, and other CFPB initiatives mean regulatory compliance will continue to be more complicated - and more important.

4. Fewer firms, steady players

2020 through 2022 were years of great success for collections, as household financial pressures were eased through stimulus and unemployment benefits. 

But a report by Aite Novarica and TransUnion points out that while the number of employees working in debt collection firms has held steady, the number of small and medium-sized agencies has declined.

The report quotes Michael Lamm of Corporate Advisory Services LLC: “the barriers to entry from a “cost to comply” perspective and [the] trend toward digital collections has led to a consolidation of small- to midsize ARM companies on a national basis.” 

The number of third-party debt collection firms declined from 10,550 in 2012 to 6,908 in 2022, with a record high of 48 mergers and acquisitions in 2021.

Firms that stay competitive will figure out how to collect smart - increasing first-call resolutions, smoothing workflows for agents, and investing in technology to provide frictionless payment options and support agents in providing exceptional customer service.

5. Rising delinquencies 

TransUnions 2023 Consumer Credit Forecast predicts a big shift in delinquencies for consumer finance.

“From a delinquency perspective, TransUnion forecasts serious credit card delinquencies to rise to 2.60% at the end of 2023 from 2.10% at the conclusion of 2022. Unsecured personal loan delinquency rates are expected to increase from 4.10% to 4.30% in the same timeframe. Serious auto loan delinquency rates are expected to modestly decline to 1.90% in 2023 from 1.95% in 2022.”

That rate in serious credit card delinquency rates is the highest it’s been since 2010.

Inflation and continually rising interest rates are putting significant pressure on consumers carrying debt.

Normally, debt collection companies would be staffing up to prepare for the trickle-down effect of delinquencies, but those low unemployment rates as mentioned above make that impossible. 

Creative ideas for getting new agents onboarded quickly, looking at nearshore hiring, and investing in technology are going to help consumer finance debt recovery agencies keep up.

In the immortal words of Ferris Bueller*, “Collections moves pretty fast. If you don't stop and look around once in a while, you could miss it.”

*Ok, that’s not actually exactly what he said. But it’s true, isn’t it?

Animated image from the movie Ferris Bueller's Day Off with the quote "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it."f