Fintech

Is fintech the key to improving debt collection?

Published

8 months ago

27 May, 2024

Is fintech the key to improving debt collection?

The phone calls and letters are still going strong debt collectionbut the spread via digital channels such as text messages and emails is gradually increasing.

The same goes for using artificial intelligence and machine learning to reach consumers in a more attractive way.

Several fintechs operating as digital-first or tech-enabled debt collection agencies, including TrueAccordJanuary and InDebted, use data-driven models to optimize their outreach to defaulting borrowers on debt based on how they interact with text messages and emails, personalizing the content and timing of their communications and targeting consumers self-service portals. Proponents of these methods say it is more convenient than talking to a human on the phone, and point out that digital messages or chatbot responses can be programmed to achieve the right tone of encouragement.

Anonymity can also be a blessing.

“There are many misconceptions about people who have debt, especially outside national borders medical debt” said Ariana Michele Moore, a consultant at Datos Insights. “Most consumers want to pay their bills.”

The question of how to effectively collect debt is especially relevant as consumer debt levels increase. A 2024 report by Datos Insights that surveyed more than 200 third-party debt collection professionals found that letters and telephones are by far the most popular communication channels used to contact consumers, at 98% and 93% of those interviewed. But 69% use email and 40% send text messages. Nearly a third of respondents are considering adding text as a method in the next two years. The banks were too rely on digital dissemination in the last few years.

“For many years, debt collection has been very archaic,” said Joann Needleman, who leads the consumer financial services regulatory and compliance group at law firm Clark Hill. But Consumer Financial Protection Bureau Regulation F, which released in 2020, enabled communications via voicemail, email, and text messages for the first time. The pandemic has also pushed the industry in a more digital direction, as collection agency call centers have emptied for security reasons, but lenders have raised data security concerns about allowing agents to make debt collection calls from home.

There is also data to suggest that consumers would welcome this change. A Datos Insights survey of 2,005 respondents in 2023 found that 77% of consumers who pay bills handled by debt collection companies are at least somewhat interested in the “contact us” option via SMS if they have a question regarding the bill , while 38% are “very interested.

“When Regulation F came out, consumer advocates were very concerned that consumers would be bombarded with emails and texts,” said Needleman, who led the National Creditors Bar Association’s response to the Consumer’s Advance Notice of Proposal Financial Protection Bureau. regulation F regulation in 2013. “That hasn’t happened. The industry is finally meeting consumers where they are and using technology to do so.”

Integration of AI and ML in debt collection

Companies like TrueAccord, January, and InDebted typically receive data files from their customers, which can include banks, credit unions, credit card issuers, fintech lenders, buy now/pay later suppliersand debt buyers. Their models or engines then analyze some combination of consumer engagement data, such as when they opened an email; characteristics of the debt, such as whether the debt is a buy now/pay later loan for a small amount or a personal loan for a large amount; or anonymized historical data. This helps determine which channels each consumer prefers, such as SMS, email, voicemail or telephone; when they are most likely to respond; what a message should say depending on the consumer’s reimbursement level; or what a refund offer should entail. The platforms will direct users to a self-service portal where they can pay off their debts or set up a payment plan.

TrueAccord is widely credited with paving the way for other digital debt collection agencies when it started in 2013.

“They have done a lot of favors in making the industry comfortable with digital self-service collections,” Tyler Gillies, vice president of operations and business development, said in January.

TrueAccord’s engine, called HeartBeat, uses machine learning to determine the correct channel, time and message content for each consumer. Contains a compliance check filter to ensure outreach complies with the Fair Debt Collection Practices Act, Regulation F, and state or local laws.

“If you make contact at 10 a.m., 1 p.m., or 4:35 p.m., that makes a big difference in terms of engagement and response,” said Steve Carlson, president of TrueML, TrueAccord’s parent company. “We will work to optimize it.”

TrueAccord paid $500,000 earlier this year to the state of Colorado as part of a settlement with the attorney general’s office after investigators found that between 2017 and 2022, TrueAccord collected or attempted to collect approximately 29,000 consumers defaulted on loans issued by tribal lending entities. These loans often carried interest rates above the 500% annual percentage rate, which consumers are not obligated to pay under Colorado’s rate cap of 12% for unlicensed loans. TrueAccord told consumers they owed the entire loan balance.

In response, TrueAccord said it recently entered into discontinuity insurance with the state of Colorado regarding lenders affiliated with federally recognized Native American tribes following a 2019 standard collection agency audit.

“TrueAccord denies that any of our practices have violated Colorado statutes,” the company said in a statement. “As a result of the settlement, Colorado is compensating consumers who made payments to these accounts. None of the agreed-upon terms will impact TrueAccord’s provision of collection services to our customers and consumers.”

January, whose name is meant to evoke a new beginning or resolution, maps its clients’ borrowers into four quadrants depending on their ability, or inability, and willingness, or unwillingness, to pay. “The most important quadrant we look for is willingness and ability to pay,” Gillies said. “If we can truly optimize for those who are willing and able to pay and approach them with compassion, we are already off to a better start.”

The language used in the texts and emails tries to convey that “we want to find an agreement that is comfortable for you and we are truly here to help you,” Gillies said.

InDebted, which is based in Australia, expanded to the United States in 2021. It works similarly to the others, with proprietary machine learning models that use historical and real-time engagement data. Each communication includes a link to the self-service portal, Resolve, where users can manage their accounts.

“Digital engagement sends out a lot of signals,” said Josh Foreman, founder and CEO of InDebted. “Have you opened your email? Are you on our site? What offers are you looking at? Do you want to settle the bill by paying in full or set up a deal?” For example, if a consumer logs in far from where he lives, it could be a clue that travel is the reason he hasn’t repaid his debt.

Equabli is a self-styled end-to-end collection and recovery center for customers, which include financial institutions, fintech lenders and debt buyers. “We don’t interact” with customers, said Cody Owens, Equabli’s CEO who co-founded the company in 2020. “We’re the technology and analytics provider.” But this also shows how machine learning is entering the debt collection industry.

Equabli will use its APIs to acquire information and documentation from its customers about delinquent customers and accounts that they will need to collect debts and manage the collection process. Equabli’s system uses machine learning and predictive analytics to classify customers based on their propensity or ability to repay and will automatically monitor compliance with debt collection regulations, for example by reporting if a third-party agency has exceeded the limit maximum of seven calls in seven days. The system also allows its clients to interact with customers through digital means, such as personalized messages and emails, and provide them with options for self-service.

While only 11% of debt collection professionals surveyed by Datos use third-party solutions that incorporate artificial intelligence and machine learning, 40% are in the process of implementing such solutions or considering them. The top three uses for those who have or are implementing it are to predict payment outcomes, segment and profile customers for various workflows, and enhance the self-service platform.

Make sure the message gets through

These companies must prove up front that they are legitimate and do not send spam.

“This is something we work against,” Carlson said. “A lot of people know that I asked for a loan from so-and-so. It’s more, do I really want to work with these people? Or do I want to run away from them because I know I’ll get harassed?”

Companies typically initiate communication via email. Regulation F requires that the initial written notice contain the balance owed, the creditor to whom the debt is owed, the consumer’s name and address, and clear instructions to the consumer on how to dispute the debt.

Foreman said that when emails are opened, unopened or marked as spam, all of that information is fed into InDebted’s model to indicate whether or not this is a good channel for a particular consumer.

“When we send a message or make a phone call, we will be sure to send content that reflects that we understand they have marked that email as spam, we can understand why that might be the case, but this isn’t, and here’s some more information about their account, to help validate authenticity,” he said.

Gillies notes that all communications from January contain information about his relationship with the account holder and the debt in question. The company has also invested in its consumer-facing branding to ensure January’s online image is credible and up-to-date.

“The moment a consumer opts out of receiving text communications, that benefit is basically dead,” Moore said. “With a text message you only have one chance to say who you are.”

Source

Related Topics:AB-Technology Debt collection Fintech Technology

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”