Multi-armed bandit models and machine learning

By on February 19th, 2020 in Machine Learning

The term “multi-armed bandit” in machine learning comes from a problem in the world of probability theory. In a multi-armed bandit problem, you have a limited amount of resources to spend and must maximize your gains. You can divide those resources across multiple pathways or channels, you do not know the outcome of each path, but you may learn more about which is performing better over time.

The name is drawn from the one-armed bandit—slot machines—and comes from the idea that a gambler will attempt to maximize their gains by either trying different slot machines or staying where they are.

How do multi-armed bandits fit into machine learning?

Applying this hypothetical problem to a machine-learning model involves using an algorithm to process performance data over time and optimize for better gains as it learns what is successful and what is not. 

A commonly used model that follows this type of structure is an A/B/n test or split test where a single variable is isolated and directly compared. While A/B testing can be used for any number of experiments and tests, in a consumer-facing world, it is frequently used to determine the impact and effectiveness of a message.

You can test elements like the content of a message, the timing of its delivery, and any number of other elements in competition with an alternative, measure them, and compare the results. These tests are designed to determine the optimal version of a message, but once that perfect message is crafted and set, you’re stuck with your “perfect” message until you decide to test again.

Email deliverability plays a key role in effective digital communications. Check out our tips for building a scalable email infrastructure.

Anyone that works directly with customers or clients knows that there is no such thing as a perfect, one-size-fits-all solution. Message A, when pitted against Message B may perform better overall, but there is someone in your audience that may still prefer Message B.

Testing different facets of your communication in context with specific subsets of your audience can lead to higher engagement and more dynamic outreach. Figure 1 below outlines how a multi-armed bandit approach can optimize for the right content at the right time for the right audience rather than committing to a single option.

Rather than entirely discarding Message A, the bandit algorithm recognizes that roughly 10% of people still prefer it to other options. Using this more fluid model is also more efficient because you don’t have to wait for a clear winner to emerge, and as you gather more relevant data, they become more potent.

Multi-armed bandits and digital debt collection

Collections continues to expand its digital footprint, and combining more in-depth data tracking with an omni-channel communication strategy, teams can clearly understand what’s working and what isn’t. Adapting a bandit algorithm to machine learning-powered digital debt collection provides endless opportunity to craft a better consumer experience. 

Following from Figure 1, digital collections strategies can determine which messaging is right for which consumer. Sorting this data in context can mean distinguishing groups based on the size or the age of the debt and determining which message is the most appropriate. In a fully connected omni-channel strategy, the bandit can take a step back and determine which channel is the most effective for each account and then determine messaging.

These decisions take time and thousands upon thousands of data points to get “right,” but the wonder of a contextual multi-armed bandit algorithm is that it doesn’t stop learning after making the right choice. It makes the right choice, at the right time, for the right people, and you can reach your consumers the way they want to be reached.

TrueAccord is optimizing how our multi-armed bandit algorithms create the ideal consumer experience. Come learn more about how we collect better!

3 essential digital channels for collections

By on February 13th, 2020 in Industry Insights

The debt collection industry is in the midst of rapid change. With the decline of the effectiveness of phone calls and upcoming legislation from the CFPB that includes limiting call volume, it’s more important than ever that your company’s collections strategy diversifies and introduces a digital, multi-channel approach to communicating with consumers.

Determining what digital channels work the best for your collection strategy isn’t an overnight decision, and using them effectively is another hurdle entirely. When reviewing potential communication channels, you have to consider how you want to use them, how you plan to scale them, and what the investment will be for doing those things properly.

Email

According to the State of Collection 2019, email is the most commonly used digital channel used to communicate with consumers in debt (beating SMS text messaging by 45%). Its frequency of use, however, does not mean that it is necessarily being used effectively. Sending manual emails haphazardly can lead to mixed results at best.

Trying to send emails at the scale required of a dedicated agency, however, is even more difficult, and poor email management can lead to low deliverability rates, poor domain authority (you may end up relegated to spam folders), and can even end up getting your company’s sending domains blacklisted from reaching any of your consumers. Figure 1, below, shows Debt Collector A’s email sending volume.

Figure 1

Sending hundreds of thousands of emails per month can seem like an effective strategy at face value, but when deliverability is taken into consideration, that appearance changes.

Figure 2, below, mirrors the bar graph in Figure 1 and represents the percentage of the emails sent from Debt Collector A that are delivered to an inbox vs. those that are filtered into a spam folder.

Figure 2

A 2019 email client market share study by Litmus shows just how valuable it can be to understand how to work with individual email service providers that all come with their own unique challenges and filters to protect their users. Gmail, for example, maintains 28% of email users, but only 1% of Debt Collector A’s emails are reaching Gmail users.

Cost

Emails can be an effective strategy, but doing so effectively at scale requires extensive infrastructure. That infrastructure includes five major things, including bringing on email experts to work with email service providers, detailed performance tracking, and creating valuable content for your consumers to engage with. Simple email may not cost much, but building a powerful email-driven strategy from the ground up won’t be cheap or easy.

Emails can serve as the foundation of an omni-channel digital strategy, but creating an ecosystem for consumers to engage at their convenience requires more than one tool.

SMS text messaging

Smartphones abound, and when Americans are sending roughly 26 billion text messages every day, it’s easy to see the potential in the texting as a collections communication channel. Millennials spend 3X more time texting than calling or emailing, and they hold an average of $4,712 in consumer debt (not to mention mounting student debt) which makes them prime targets for daunting debt collectors hounding them about a balance. This can be intimidating and turn consumers further away from wanting to work with you.

SMS allows for fast, direct contact with consumers that are on the move, don’t have time for a phone call, and may have breezed past an email or two. By creating a flexible system with multiple touch-points across different channels, you can create an organic system of contacting consumers rather that gives them the power to contact your team when and where they want.

Key uses for SMS:

  1. Payment notifications
    1. Following up with customers to confirm a payment can help to reassure them that their next step toward financial freedom is done and increases transparency between your business and consumers. 
  2. Payment reminders
    1. Even consumers on a payment plan might forget once in a while. A ping with a text message can be just enough of a nudge to remind them to log in and make their scheduled payment.
  3. Providing instant access to their account
    1. By providing a one-click option for a consumer to make their payment, you can make taking the next step easy! Pairing this option with a simple online payment portal gives consumers the opportunity for a full self-service experience.
  4. Tracking your performance
    1. As is the case with other digital channels, tracking your data and performance is easier than ever with texting. You can A/B test messaging and get consistent results for improving engagement.

When you’re considering what to include directly as part of the content of a text message, keep in mind that people expect texts to be short! Length aside, make sure to avoid:

  1. Sensitive information (e.g., account balances, credit card information, etc).
  2. Misleading information
  3. Threatening consumers
  4. Harassing consumers

Text messages have a 209% higher response rate than phone, email, or Facebook, and part of the reason for that is that they are digestible and often feel informal and friendly. On the flip side, misleading, threatening, and harassing texts not only deter engagement and damage your brand, they are also illegal.

Plus, the CFPB’s proposed rules will give consumers the ability to opt out of text messaging, and your texting numbers can still be blocked manually. Be selective with the messages you send and consider the consumer experience.

Getting started with texting using certain software companies can be as cheap as pennies per message. Full-scale agencies like TrueAccord also make use of SMS tools as part of a broader collections strategy alongside other digital tools.

Direct drop voicemail

Direct drop voicemails (also known as ringless voicemail drops) are a unique channel that can help supplement a digital communication strategy but can’t do much on their own. Rather than an agent calling a consumer directly, a voicemail is delivered to the recipient’s inbox without their phone ringing (hence the name).

The consumer still receives a message from a pre-recorded voice that can relay much of the same information that they would have gotten from an agent, but they do not feel the urgent response pressure associated with a phone call. Much like text messages, direct drop voicemails can be used sparingly as a touch point to remind consumers of upcoming payments or ask them to check an email or call an agent back.

From a cost perspective, direct voicemail offerings can range from a few cents to a few tenths of a cent depending on the provider, and many companies will charge based on successful drops rather than a flat charge for the volume sent which can avoid costs incurred for out of date or incorrect phone numbers.

Both direct drop voicemails and text messages are legally classified as phone calls by the TCPA as the law applies to “placing a call or text to a consumer using the consumer’s mobile number.” Be careful with when and how you decide to use either channel in your collections strategy!

As consumer preferences and collections law continue to evolve, we should expect to see rapid growth in both existing digital channels as well as the emergence of others! Effectively integrating these tools into your strategy together can create a much larger impact than any one channel in isolation, and teams that build these systems today will be the future leaders of the industry very soon.