Halfway through 2021, e-commerce and consumer spending continue to see the impact of government stimulus payments while consumers look for new ways to invest and leverage their money. Simultaneously, all sectors of fintech grew during the pandemic, and this growth has not shown signs of stopping. Investment and lending platforms have grown in users by the highest percentage during the pandemic — with increases of 23 and 25 percent, respectively (McKinsey).
With the digitization of banking and financial services now firmly part of our new normal, is “disruption” still possible in fintech in 2021? TrueAccord co-founder and CEO, Ohad Samet, recently sat down with Julie VerHage-Greenberg of Fintech Today to discuss what the next horizon of fintech disruption will look like — and how financial institutions of all types can stay ahead of the curve and create groundbreaking solutions this year.
Watch the full “TrueAccord Talks” episode for more insights, but key trends to watch in fintech disruption in 2021 include:
Solving “structural problems”: Fintechs, unlike many traditional financial services companies, are not just putting old products online and calling them digital, but rethinking the approach to existing problems and building new, better solutions.
Digitization for customer experience: While many companies have focused on digitizing the customer experience, those that haven’t may begin to feel the pressure to adapt. With digitization increasingly being driven by consumer demand and expectation, financial service providers that don’t integrate the consumer experience into their offerings will lose out to those that do.
Affordable financial services: With so many new fintech players in the industry, competition and innovation continue to spur more efficient and affordable services for consumers. Old products will be replaced with new banks, payment options and wage access, and more will focus on credit care and access to cater to consumers.
Generally, when talking about artificial intelligence (AI) in regards to medical collections, we hear about how it has automated the once-painstaking process of medical coding for billing. But why stop there? With all of its capabilities, AI has much more impressive and patient-facing applications when used to improve customer experience, especially in the healthcare industry which is increasingly digital-first and self-serve. In this post, we’ll explore how AI and machine learning can supercharge the healthcare revenue cycle by catering to consumer preferences, turning billing and collections into a seamless, efficient experience for both patients and providers.
But first: why is it necessary—and even urgent—to improve healthcare revenue management? The answer is patient expectations. Patients now expect the same type of personalized, easy-to-use experience they’ve grown accustomed to receiving from other industries, including banking, airline and retail industries. Patients are now “digital-first” and look for an end-to-end experience that allows them to handle medical-related issues on their own, often from their mobile devices. Patients can already schedule appointments, request prescription refills, receive test results, and even contact their healthcare provider directly through digital platforms. The application of digitization through AI and machine learning to other touchpoints in the patient journey, all the way through billing and collections, can improve customer experience and thereby their overall interactions and relationships with their healthcare providers.
First, digitization powered by AI and machine learning can replace manual and paper processes to speed up the recovery timeline. A 2020 report by InstaMed, a J.P. Morgan company, found that patient collections take more than a month for 63% of healthcare providers. This figure isn’t surprising when 81% of providers still leverage paper and manual processes for collections, while 75% of consumers want to receive eStatements for medical bills. The traditional method of collections does not align with consumer preferences, with more than half (54%) of consumers surveyed saying they prefer electronic communications (emails, text messages, in-app messages and live chats) for medical bills. And a majority of consumers (65%) preferred paying those medical bills digitally as well – whether online through their doctor’s or health plan’s website, their bank’s bill-pay portal or mobile apps – instead of manually. Using AI and machine learning to match the consumer’s communication and payment preferences can drastically improve the time needed to engage and collect from patients.
Second, AI-powered systems can personalize the billing and collections process and offer intuitive payment solutions for patients to achieve the best possible recovery rates. According to the InstaMed report, collecting patient financial responsibility in a timely manner was especially challenging for large patient balances, with 49% of surveyed providers reporting that they cannot collect bills of more than $400 in 30 days. Especially with multiple billers on different payment cycles, it can be difficult for a patient to set up a payment plan with terms they can successfully meet. AI can improve this experience by identifying the most efficient time, place and manner to communicate with a patient about their financial responsibility and go a step further in presenting personalized, affordable payment options.
Third, AI can be used to interface directly with clients where they are and minimize the need for waiting on hold for the next available representative, creating a more seamless, humane process and a better customer experience. AI-enabled chatbots can answer basic questions, while automation can help provide information on why claims were denied and other status updates. Empathetic customer service is important in the healthcare industry and customized customer self-service can reduce frustration for the patient and the number of service agents needed for the provider.
At TrueAccord, we use AI and machine learning to build digital debt collection solutions for billers that put customers first. By implementing behavioral analytics to predict consumer communication preferences and machine learning to create smart, intuitive processes that increase likelihood of patient repayment, TrueAccord products stay a step ahead to ensure a successful revenue cycle where both patients and providers win. To safeguard personal patient information, TrueAccord’s policies and procedures are designed to comply with all HIPAA-related requirements (Health Insurance Portability and Accountability Act), including documenting the use of protected health information (PHI) and the physical, technical, and administrative safeguards implemented to protect PHI. Learn more about how we use AI and machine learning to provide a personalized collections experience at scale here.
If you aren’t familiar with Buy Now, Pay Later (BNPL) yet, it’s a safe bet that you will be soon. The service, which allows consumers to split a purchase into several payments over a set period of time, has been popular in other countries and has been gaining traction in the U.S.
To quantify the growth in BNPL use, a February 2021 survey conducted by The Strawhecker Group (TSG) of more than 1,500 U.S. consumers found that nearly two in five (39%) had used a BNPL service and predicted that BNPL volume will double by 2025. A separate March 2021 survey by The Ascent found that 56% of U.S. consumers have used a BNPL service, a nearly 50% increase from July 2020.
This type of payment plan, offered by BNPL companies, has clearly caught on with consumers, leading to rapid growth (in some cases 200% or more year-over-year in 2020) for the main players.
So why do consumers love this offering? The question should be, why wouldn’t they?
The service performs like a short-term credit card, with generally no interest or fees due, unless the consumer misses or is late on a payment.
It’s simple and convenient to use when shopping online, with payment offers prominently displayed at checkout.
It’s easy to see why consumers would opt for a more flexible, pay-over-time purchase option. After trying BNPL, users tend to like it and become repeat customers – TSG’s research found that nine out of ten people who have used BNPL found it reliable and that 85% of consumers plan to continue using it. TSG’s research also confirmed that the option to buy now and pay later tends to make people spend more than they would otherwise, potentially outside of their budget. BNPL will continue to be an attractive payment option for consumers, especially if it’s eventually integrated into in-person retail transactions, and the need for consumer education will grow.
As a digital debt collection company, TrueAccord helps clients collect on unpaid debts, but is equally committed to helping consumers achieve long-term financial fitness and stability. TrueAccord works with many BNPL customers who for one reason or another did not meet the terms of the payment plan and ended up in collections by helping them understand their debt, offering flexible repayment options and educating on smart borrowing and spending. TrueAccord aims to usher BNPL consumers through and out of debt while delivering the best possible experience, and it’s that collaboration that will lead to better business for BNPL providers and better financial outcomes for consumers.
If you’re interested in learning about BNPL service providers and our work, check out our recent webinars co-hosted with Klarna and Affirm.
In a recent report by the Aite Group, TrueAccord was featured in the inaugural edition of the “Retail Banking & Payments Fintech Spotlight”, which highlighted disruptive fintechs with a strong focus on technologies that improve the customer experience. Analysts from Aite Group selected the six featured fintech vendors exclusively based on their level of innovation and their interesting approaches to wider business challenges facing the retail banking and payments market from both bank and customer perspectives.
The key differentiator making TrueAccord an innovative fintech disruptor? Not just taking an old system and making it digital, but using a customer-centric approach and machine learning engine that caters to each individual’s needs and seeks to fundamentally change the way consumers manage their debt.
TrueAccord directs consumer focused messages to their preferred communication channel at the right time, all in line with federal and state requirements. With automated communications and the consumer’s ability to self-serve, TrueAccord collection agents can service 80,000 accounts at a time, compared to the typical 1,000 to 2,500 accounts that a traditional agent manages on behalf of the financial institution client. In addition, TrueAccord has found that allowing the consumer to propose their own payment arrangements within the institution’s approved parameters makes it 50% less likely that they will break that payment agreement.
“Taking an existing process, especially one that is historically not consumer-friendly, and overhauling it from the ground up to actually benefit consumers is disruptive in the best way,” said Leslie Parrish, Senior Analyst, Aite Group. “While many companies focus on the consumer experience during the loan application process, very few bring that same attention to providing a consumer-friendly digital-first experience to the collection of that debt. TrueAccord’s unique approach to debt collection serves as a catalyst for transforming the collections industry.”
Excerpt from “Retail Banking & Payments Fintech Spotlight”:
The process of collecting on consumer debt is in need of a serious update, and TrueAccord distinguishes itself as a true stand-out in this industry. Together, the company’s three offerings provide a comprehensive solution set for both financial institutions and consumers. Consumers have significant pain points in dealing with unwanted collector calls and would much prefer to deal with these unpaid debts without having to speak with an agent. TrueAccord’s Recover and Retain platforms collectively provide financial institutions with a way to effectively communicate and collect on accounts at varying stages of delinquency in a way that is hospitable to consumers.
To read the full TrueAccord spotlight, download a copy of the report here.
Klarna, the highest-valued private fintech in Europe, is on a mission to make shopping simple, safe and smooth, for both consumers and retailers, through its suite of payment products and services. From its inception in 2005, Klarna has not compromised on providing a seamless consumer experience — even when it comes to consumers in collection.
With a high standard for customer experience and in an effort to integrate collections seamlessly with their product, Klarna initially opted to keep collections in-house. For five years the company had great results with in-house collections, but as Klarna expanded to new markets and added new products, scaling in-house collections while maintaining a best-in-class customer experience strained the company’s resources and became less feasible.
This led Klarna to begin considering a third-party collection partner. By this time, the collections industry had evolved. New players like TrueAccord were building digital-first collection solutions that vastly improved the customer experience via personalized outreach, flexible payment plans, and a self-optimizing, machine learning-driven performance engine.
It’s easy to underestimate the expertise involved in building an effective, compliant digital debt collection engine, and partnering with the right collection solutions provider would free up valuable internal resources. Klarna’s priority was to focus on their core business and engage an expert partner who would be able to build a world-class collection operation for them — one that would only enhance their consumer experience while not sacrificing brand image.
“We look at collections partners the same way we look at hiring team members: we only want to work with the absolute best. We wanted to partner with a company that truly takes care of consumers,” said Jan Hansson, VP Debt Collection, Klarna.
Other key considerations to moving away from in-house collection included, data science expertise, engineering talent, compliance resourcing and industry knowledge. After doing their due diligence, Klarna decided to partner with TrueAccord as a collection solution provider. TrueAccord stood out from competitors in two important ways: customer centricity and digital and multichannel capabilities.
By partnering with TrueAccord, Klarna was able to increase liquidation rates and achieve better holistic results, with retention rate a key indicator. Moving to a partnership with TrueAccord from in-house collection also allowed Klarna to free up valuable internal resources and refocus on their key business functions. Klarna is now expanding their engagement with TrueAccord to include more accounts and looks forward to growing the partnership even more in the future.
“We are so proud to work with TrueAccord,” said Sebastian Siemiatkowski, co-founder and CEO, Klarna. “Putting technology to use for the people instead of against the people is the next generation of tech.
As we speed towards the end of a tumultuous year, I wanted to share my thoughts on what the months ahead may bring for the collections industry.
First, to address the riddle in the title of this post, what do the holidays and tax season have in common? Debt repayment. According to TrueAccord’s data from 12 million American consumers, debt repayment typically peaks twice a year: once during the winter holidays and again from February to early April when tax refund checks are received.
But those aren’t the only factors that may affect debt repayment in the near future. A second COVID stimulus package may be around the corner, and if the first stimulus package is any indication, that may lead to an increase in the number of Americans who are choosing to pay off debt. (In 2019-2020, there were not two, but three peaks in debt repayment—the winter holidays, tax season, and April-May, when stimulus checks were delivered.)
So, what will be the impact of a high debt repayment season coupled with an economic stimulus? A sharp and potentially unprecedented increase in debt repayment might be coming very soon.
If you’re worried about scaling your collections operations to effectively meet the increase in payments, reach out to TrueAccord. We put the consumer in the driver’s seat: 96% of consumers we work with resolve their debts through self-service on our digital channels. That high level of automation enables TrueAccord to run very lean, averaging 80,000 active accounts per agent.
At TrueAccord, we are changing the lives of the 77 million Americans in debt and leading the digital transformation of the collections industry. We’d love for you to join us.
The COVID-19 crisis has ushered in an era of extreme uncertainty. As the country begins to slowly recover, the collections industry will face serious challenges. To help make sense of it all, we hosted a webinar with TrueAccord CEO Sheila Monroe and VP Customer Success Mega Rankin to discuss the impact COVID-19 has had on collections and what it means for the months ahead.
Read on to learn how COVID-19 impacted companies and consumers, how digital debt collection adapted, and what to prepare for in the coming months. You can also watch the full webinar here.
The COVID-19 Impact
The spread of COVID-19 ushered in a wave of unprecedented health and economic uncertainty that rapidly changed daily life across the country. These changes affected almost every aspect of daily life, including finances.
This uncertainty caused a disruption to tax season, typically a time when consumers pay off their debts at a higher rate than usual. As businesses across the country closed, there was a dropoff in consumer engagement with their debt (anything from opening an email, looking at plan options, calling into a call center, etc.), as well as payments.
However, the coronavirus-caused recession turned out to be different from every other recession we’ve experienced. While unemployment skyrocketed to record levels in April, individuals actually saw an increase in personal income on average due to stimulus checks and increased unemployment benefits. With stay at home orders in place, spending on things like travel, entertainment, and dining decreased, which led to a record high personal savings rate.
Many consumers took this opportunity to clear their financial slate. In addition to a higher level of engagement with debt, there was a substantial increase in lump sum payments in late April and early May.
Of course, the impact of the virus was not consistent across all consumers. For this reason, flexibility was key during this time. We saw many consumers modify their plans to fit their new financial situation in late March and early April. And those consumers who did create new payment arrangements opted for longer plans with lower payments. Consumer choice is always a crucial part of any debt collection communications, but all the more so during a time of unprecedented uncertainty. Luckily, 90% of webinar attendees allowed consumers to modify their plans in some way.
How digital-first debt collection adapted
As consumers shifted their behaviors to match a new reality, businesses were also facing some serious challenges. Specifically, companies needed to shift to a work-from-home environment. For most debt collection agencies, this was the very first time they considered having the majority (if not all) agents working from home. Many companies struggled to make that shift, especially around taking payments in a compliant manner. That means that at the same time as consumers actively wanted to pay off their debts, many of them were not able to reach an agent to do so.
As a digital-first debt collection agency, TrueAccord was able to rapidly adapt to best serve both our clients and consumers. Our cloud-based environment allowed us to seamlessly and safely shift our workforce to work-from-home, while our automated collections platform and self-serve payment portal, which allows us to carry agent workloads that are more than 50 times our competitors, ensured that consumers could self-serve payments, plan adjustments, and disputes while consumers who needed to talk to an agent were able to do so.
Additionally, as consumer behaviors shifted, our machine learning-driven outreach was able to adapt to these new patterns to ensure the best customer experience. And as always, our digital communications and self-service tools enabled consumers to engage with their debts when it was most convenient for them. This was especially crucial as consumers were also shifting to working from home, often with spouses and children in the same spaces. With packed schedules, the ability to explore payment options on their own time, even outside of FDCPA hours, was key.
What’s next?
While no one can be certain of what’s next, businesses must plan for multiple possible scenarios to best meet consumer needs. There are many factors to consider that will impact the future of the U.S. economy, including the unemployment rate, any possible additional government stimulus, vaccine development progress, individual states reopening and closing, schools reopening, and major employers going out of business.
While the exact timeline for recovery may not be known, according to a FiveThirtyEight survey, 73% of economists believe there will be a reverse radical recovery, meaning after a sharp decline, there will be a sharp partial rebound followed by a slow recovery. Similarly, the Fed is predicting that unemployment will remain in the double digits through at least the end of the year. Perhaps for this reason, the audience’s two biggest concerns for the next 12 months were lower liquidation rates due to high unemployment and pre-charge off delinquency rising.
That means that we can expect a few things to happen. It’s likely that there will be rising delinquencies through the end of the year, as a recent survey by the CFPB showed that 52% of households couldn’t cover expenses for more than two months after a loss of income. Additionally, as forbearance programs and hardship programs wind down, and government assistance becomes less regular, we can expect to see higher levels of charge off, and see generally lower levels of collectability while the economy slowly recovers.
To learn more about how these changes are affecting the industry, watch the full webinar.
The collection industry has come a long way since local door-to-door agents tracking their accounts on index cards, and yet there is still a dearth of data. Most agencies rely on age-old adages or instinct to make operational decisions.
Our six years of working with millions of consumers to resolve their debts digitally has given TrueAccord unique insight into consumer behavior. We turned to our data—aggregated across more than 12 million U.S. consumers—to better understand how consumers were engaging with their debts and what it tells us about the future of the industry.
Consumer confidence in the economy matters
Before consumers even consider paying a debt, they start engaging with the debt collector. This engagement can take many forms, from clicking a link in an email or a text message, listening to a voicemail, visiting a debt collection website, or even calling into a support center. All of these actions indicate that a person is reviewing their options—a serious first step toward payment. Our work with consumers has shown us that engagement tends to increase when consumer confidence about the economy (and their own financial situation) is high and decreases when consumers are more uncertain about their ability to pay.
For example, the graph below shows click-through rate (CTR) trends for TrueAccord’s collection emails through late 2019 and early 2020 (the blue line), alongside the monthly change in U.S. personal income levels (the grey dotted line), based on data from the Bureau of Economic Analysis. While CTR is a more volatile metric, the overall direction mirrors the changes in personal income.
Engagement metrics, like CTR (shown here), trend positively with monthly changes to personal income.
Payments are scheduled around paydays
Based on TrueAccord data, it’s clear that consumers prefer to make payments on Fridays more than any other day of the week. Fridays accounted for only 14% of the days in 2019, yet 35% of payments from payment plans were made on Fridays. The first, fifteenth, and last of each month also have large surges of payment volume. It makes sense that consumers plan their debt payments around when they receive their paychecks each month.
In a typical month, payment volume is highest around popular paydays: Fridays, the 1st, 15th, and last day of the month.
Tax season is the busiest time for paying off debt
Nearly 80% of U.S. households receive a tax refund each year, amounting to about $2,800 on average. This influx of cash can be a lifeline for many families struggling financially, so it’s no surprise that a survey by the National Retail Federation found that 34% of consumers who expect a tax refund plan to use it to pay down debt.
For this reason, late February through early April is the busiest time of the year for paying off debt (as shown with TrueAccord data below). In fact, we generally see a one-day peak in the last week of February, the first possible time to get a tax refund. After April, debt payments generally slow down again until Q4, when seasonal employment and gifting once again provide many American households with additional boosts of income.
Payments peak in March due to tax season, then slow down in Q3. There is another surge in payments during the holidays.
These trends all point to a simple truth—consumers choose to pay their debts when they have the money and confidence to do so. Rather than coerce consumers into making payments immediately, debt collectors should provide flexible (and ideally self-service) payment options. Especially in times of economic uncertainty, it is important for consumers to feel confident that they can adjust their payments to accommodate uneven or unpredictable cash flow.
To learn how these behaviors have changed during the coronavirus crisis, plus 4 specific actions collection agencies can take to adapt, download our report, Consumer Debt in the Age of COVID-19.
iA Strategy & Tech, a conference built for strategy, technology, and analytics professionals in the credit and collections industry, kicks off this week. The team at TrueAccord is busy preparing for three days of insightful sessions, digital networking, and country music.
Here are the sessions we’re most excited about:
1. The Path to Innovation Part I – The Industry Outlook and Guidance to Help Weather the Storm
When:July 21, 12:30 pm EDT
The speakers:Steve Dymowski, Head of Collections Strategy, TD Bank, with a panel of experts from Bridgeforce
Why we’re excited: The coronavirus crisis has changed the way businesses and individuals are operating around the world. We’ve been thinking a lot about the impact this has had on the collections industry in particular, from the switch to work-from-home, to huge shifts in consumer behavior, so we’re excited to hear how others in the industry are approaching this topic.
2. Segmentation and Prioritization – The Evolution
When: July 22, 3:30 pm EDT
The speakers: Terry Gildden – Associate Partner, The Intelitech Group, Greg Hocutt – President, Hollis Cobb and Associates, and Tyler Roark – Senior Partner, The Intelitech Group
Why we’re excited: Experimentation is key to a strong digital debt collection strategy, so we’re looking forward to this session on evaluating strategy changes, both short and long term. Plus, we can never stay away from a session that promises discussion on holdout populations and test and control group sizes.
3. The Path to Innovation Part III – The Legal and Compliance Reasons Why You Can Innovate
When: July 23, 12:30 pm EDT
The speakers: Rachael Bowman, Operations Strategy and Innovation, Discover Financial Services, Kristyn Leffler, Digital Strategy Director, Resurgent Capital Services, and Tim Collins, Chief Compliance Officer, TrueAccord
Why we’re excited:We’d never turn down an opportunity to hear TrueAccord’s Chief Compliance Officer Tim Collins speak, but this panel also promises to be one of the most insightful and actionable. The collections industry has historically leaned on compliance as a reason not to innovate. This group of experts will discuss not only why it’s crucial to innovate, but how to do so within legal boundaries.
Six months in, it’s safe to say 2020 is not the year that anyone expected. The worldwide spread of COVID-19 has ushered in a wave of unprecedented health and economic uncertainty that has rippled through every aspect of life.
In our report, Consumer Debt in the Age of COVID-19, we studied the impact this crisis has had on consumers so far and what it means for the months ahead, based on digital debt interaction data from more than 12 million consumers. Here are four key trends from the report:
1. Consumers chose to leverage CARES Act checks to pay off debts
Unsurprisingly, there was a huge decrease in debt payments in early March as the nationwide economic downturn began, despite typically being the strongest performance month for debt collection. However, as a result of the CARES Act, the average personal income in the U.S. rose by 10.5% in April 2020 and many Americans chose to use this additional money to pay off debt. Specifically, there was a near-instantaneous increase in debt payments on April 15th, the day the first major wave of CARES checks hit bank accounts. On that day, debt repayment dollars were 25% higher than on February 26th, the first day of tax season and previous payment peak.
When presented with a one-time surge in income (like a tax refund or stimulus check), many consumers chose to pay off their debt all at once, rather than having to keep up with a payment plan over time. In April and May of 2020, 40% of payments were lump-sum payments — 50% more than the same period in 2019.
For many people, the stimulus check represented their path to a clean financial slate. With an uncertain economic future ahead, many opted to clear their debts completely rather than dole out payments over the course of many months. This can be especially important before a recession to ensure easy access to credit lines, should they be needed, in the future.
2. Engagement fluctuated throughout the crisis
The actions consumers take before resolving a debt can provide insight into their intentions. For example, when a consumer visits a collection website, opens an email, or clicks on a link, it’s likely that they’re starting to consider their options in regards to their debt, even if they don’t take any action that day. Tracking these intention-driven engagements or “prepayment activity” can help a company understand how likely it is that consumers will pay their debts.
In terms of these types of engagement, 2020 started like any other year — there was a notable increase in prepayment activity in late February as the first tax refunds were being distributed. However, by early March, the severity of the coronavirus pandemic became evident and a steep decline in engagement began. Not long after a national emergency was declared on March 13th, engagement dropped to pre-tax season levels. For example, on March 14th, click through rates were almost 40% lower than the same date in 2019.
That all changed once the CARES Act, a $2 trillion relief bill including “economic impact payments” for many American families, was passed. The promise of an unexpected windfall caused consumers to consider paying off their debts. Even before these stimulus payments first started hitting bank accounts on April 15th, there was an increase in engagement across all channels. That bump was short-lived, as engagement began a steady decrease shortly thereafter.
3. Cash stimulus provided short-term financial stability for many
Despite the increased volume of payments, fewer payments failed in April and May than usual. In fact, for those months, there was a 35% decrease in failed payments year over year. This can be attributed to two factors: consumers preemptively modifying their payment plans in March and the sudden infusion of cash directly to consumers’ bank accounts. For some households, the combination of a tax refund, stimulus check, and additional unemployment benefits provided unprecedented liquidity.
Unfortunately, that trend (and that liquidity) did not last long. By late May, an increasing number of payments were failing. While failure rates were still below pre-pandemic levels at the end of June, they are unlikely to decrease again without additional governmental aid.
4. Flexible plan options were key in fast-changing environment
While resolving debts in full is the ideal for most consumers, it isn’t always possible. Most consumers choose to set up a payment plan that allows them to pay in smaller installments over time. In the first half of the year, consumers’ preferences for these types of plans rapidly shifted in line with changing economic conditions.
While fewer consumers started new payment plans in March than earlier in the year, those who did choose to start a plan opted for a longer time horizon and lower monthly payments. This trend was accelerated by many creditors offering longer payment plan options to better serve consumers at the start of the pandemic. In mid-March, the average payment plan was 25% longer than ones started during tax season. As uncertainty loomed, it’s likely these people tried to minimize their cash outflows.
As more money was infused into the economy through the CARES Act, that trend reversed, with consumers once again opting to start payment plans around April 15th (a 22% increase from the previous week) and choosing shorter timelines. However, by the end of May, consumers were once again opting for longer plans, and signing up at a slower pace.
Similarly, consumers flocked to modify their existing payment plans in March as mass layoffs and furloughs spread through the country. This behavior slowed to pre-pandemic levels once stimulus was introduced, only to begin rising again in late May.
One thing is certain — the ability to set up and modify plans on their own terms was clearly important to consumers. Most consumers want to pay off their debts when possible, but in uncertain times, they may not be sure that they can afford to do so. Providing the freedom to customize a payment plan or lower monthly payments when necessary gives consumers the confidence they need to commit to a plan.
What’s next?
As Americans spend the last of their stimulus cash, and unemployment benefits are due to expire, the future looks uncertain. While one-time stimulus empowered many consumers to resolve their debts, by late May, payment failures once again began to rise, even as payments slowed. What happens in the second half of 2020 will depend on many factors including additional governmental aid, employment opportunities, viral spread, and the presidential election.
No one can be certain what will happen next, but one thing is clear: consumers need the flexibility to pay off debt on their own terms. The first half of the year showed that consumers want to pay off their debts when possible, but in uncertain times, they may not be sure that they can afford to do so. As the world settles into a “new normal,” the industry will have to be prepared for unpredictable payments based on the ever-evolving economic situation.
TrueAccord is a machine-learning and Al-driven 3rd-party debt collection company that is reinventing debt collection. We make debt collection empathetic and customer-focused and deliver a great user experience.
Our digital-first approach to debt collection creates a cycle of collections growth:
1. Improve the perception of the industry
2. Provide a personalized experience
3. Build brand equity and collect
