From Scary to Digital: How Technology is Improving Debt Collection – Academia

Rishab Goel

Uttar Pradesh, India ●
Fri, November 25, 2022

Debt Collection Digital Technology Fintech Bad Loans Artificial Intelligence App OJK

Let’s face it, debt collection is daunting for everyone involved. Despite the assumption that lenders and borrowers have conflicting interests, both want the same thing: a timely and seamless debt resolution.

However, today’s debt collection methods of manually contacting borrowers through repeated phone calls, letters and visits are archaic in the modern and high-tech age, especially in the financial services industry.

According to Google, Temasek and Bain & Company, Indonesia is the largest digital economy in Southeast Asia with a gross merchandise value (GMV) of US$70 billion last year. The same report also predicted that the country’s digital economy will grow to $146 billion in 2025, an environment befitting the growth of potential markets and services.

Driven by a young, rapidly digitizing population with increased purchasing power, the archipelago is a breeding ground for technological advances. Financial technology (fintech) and digital banking have grown exponentially over the past two years. Case in point: Digital bank accounts hit 47 million in 2021 alone and are projected to reach 74 million in 2026, according to a recent study by

However, easy and ubiquitous access to credit and buy-now-pay-later (BNPL) also led to higher default rates as economic uncertainties lingered. Debt collection could become a bigger problem for Indonesia as the Financial Services Authority (OJK) reported that banks’ gross non-performing loans (NPLs) rose to 2.9 percent in July from 2.8 percent in June this year . Recent soaring gas prices are likely to push NPL and delinquency rates even higher going forward as borrowers prioritize their spending.

Financial institutions have already had difficulties with collections. In a research by Euler Hermes entitled 2018 Collection Complexity Score and Rating, Indonesia was ranked seventh among nations where it is “very difficult” to collect unpaid debts. One of the reasons it is difficult to get a debt repayment in Indonesia is that debt collection has traditionally been a manual and labor-intensive activity.

The traditional approach is often compromised by hostile recovery agents and repeated calls. While Indonesia has not yet enacted a specific debt collection law, financial service providers must comply with Bank Indonesia, OJK and Penal Code (KUHP) guidelines prohibiting physical and verbal intimidation. However, reports of debtors facing violence and intimidation are widely reported in the media. The situation creates an uncomfortable experience and negative stigma surrounding debt collection.

Indonesia’s Fintech Lenders Association (AFPI) has also encouraged companies to certify their collections team members to keep up with industry standards. While educating debt collectors is important, implementing the right technology in financial services debt collections solutions is just as important.

Digital debt collection improves speed and collection rates at a fraction of the price and minimizes payment defaults. Lenders can leverage technology to streamline the end-to-end loan collection workflow, including on-site communications, litigation, billing, payments and collections.

For example, artificial intelligence (AI) driven and omnichannel debt collection solutions will lead to a smoother customer experience. An engagement strategy based on a machine learning model can help lenders determine effective channels and resource allocation.

By segmenting customers, using a tailored communication plan for each segment, and personalizing messaging for collections processes, lenders can not only improve recoveries but also drastically reduce collections costs. Rather than following a one-fits-all strategy, lenders must employ dynamic and personalized strategies aligned with risk assessment, borrower behavior, communication model and analytical insights.

For field collections, mobile-based technology solutions have enabled full digitization of processes with innovative features such as real-time geo-tracking of field workers, intelligent route planning, map-based navigation, digital receipts, in-app calls and dashboards. The entire legal workflow, including notifications, legal notices, case tracking and status tracking, can be easily automated and digitized for greater efficiency.

According to the We Are Social report, Indonesia is home to 204.7 million internet users and 100 million smartphone owners, suggesting that most Indonesians can use technology to their advantage. Even in small towns and villages, customers can now be reached via all channels, including SMS, WhatsApp, Interactive Voice Response (IVR), voicebots, chatbots, email or voice messages.

Borrowers prefer to be engaged on a channel and at a time that suits their schedule rather than constant reminders through general communications. There is also less likelihood of default when customers are given timely reminders and support of their upcoming payments.

As collections become more cost-effective and faster, lenders with better returns have a greater chance of expanding their portfolios by lending to newer segments in more remote areas that were effectively outside the credit umbrella. Here, a comprehensive technology-enabled approach to collections can also contribute to financial inclusion, especially considering that 92 million Indonesians are unbanked and 47 million are still underserved, according to a 2019 Google report.

Providing credit to these individuals will not only open up economic opportunities for the underbanked, but will also reduce financial inequality in the long run.

Banks and other lending institutions need to adopt a more data-driven, digitized and customer-centric collections strategy that delivers excellent service. Aside from boosting debt collection for the business, opening up new opportunities and changing the perspective of a once daunting practice, digital-enabled debt collection will create stronger customer loyalty, resulting in a better overall financing experience.


The author is co-founder and CEO of Credgenics.


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