From daunting to digital: How technology makes debt collections better – Academia

Rishabh Goel

Uttar Pradesh, India
Tue, November 25, 2022


debt, collection, digital, technology, fintech, non-performing, loan, artificial-intelligence, App, OJK

You make it, debt collection is complicated for everyone. Despite the assumptions that the interests of lenders and borrowers differ, they still want the same thing: timely and seamless debt resolution.

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today’s debt collection methods of contacting borrowers manually through repeated phone calls, letters and visits are outdated in the modern and high-tech era, especially in the financial services industry.

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

The archipelago was fueled by a growing population of young people with increased purchasing power. Financial technology (fintech) and digital banking have grown exponentially in the past two years. Case in point, digital bank accounts reached just 47 million in 2021 and are projected to reach 74 million in 2026 according to a recent study by

But easy and ubiquitous access to credit and buy-now-pay-later (BNPL) has also continued to lead to higher defaults as economic uncertainty continues. Debt collections could become a bigger problem for Indonesia, as the Financial Services Authority (OJK) reported that the number of non-performing loans (NPL) rose to 2.9 percent in July from 2.8 in June this year. The recent rise in gas prices will likely drive NPL and default numbers higher in the future as borrowers prioritize their spending.

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Financial institutions were already facing problems with air collections. In research by Euler Hermes titled “2018 Collection Complexity score and Rating”, Indonesia was ranked seventh among nations where it is “severely difficult” to collect debt. One of the reasons why it is difficult to obtain debt repayment in Indonesia is that collections are traditionally manual and labor intensive.

The traditional approach is often corrupted by hostile agents retrieving and repeating calls. While Indonesia has yet to have a specific law on debt collection, financial service providers must adhere to the regulations of Bank Indonesia, OJK and the Criminal Code (KUHP), which prohibit physical and verbal harassment of users. However, the message of the debtors against the violence, the terror in the media is raised. The situation creates an unpleasant experience and a negative stigma around debt collections.

The Association of Indonesian Fintech Creditors (AFPI) also urged member debt collection firms to comply with industry standards. While organizing a debt settlement is important, implementing the right technology within financial debt collection solutions is equally important.

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Digital debt collections have improved speed and collections at a fraction of the cost as well as reducing delinquencies. Lenders can leverage technology to optimize the end-to-end loan recovery workflow, including communications, litigation, billing, payments and field collections.

For example, artificial intelligence (AI) driven, and omnichannel debt collection solutions will lead to a more pleasant customer experience. Machine learning model-based competition planning can help lenders determine effective routes and allocation of resources.

By segmenting customers, using a communications strategy for each segment, and delivering personalized collection messages, creditors can not only increase recoveries but also drastically cut the cost of collections. Instead of following a one-size-fits-all strategy, lenders need to use dynamic and personalized strategies that are based on risk assessment, borrower behavior, communication model and analytical insights.

For field collections, mobile technology-based solutions have innovated the complete digitization of processes with capabilities such as real-time field force geo-tracking, smart route planning, map-based navigation, digital receipts, in-app calling, and dashboards. The entire legal process including concepts, legal communications, subsequent cases, and status tracking can be easily automated and resolved for higher efficiencies.

According to We’s Social Report, Indonesia is home to 204.7 million internet users and 100 million phone owners, meaning that most Indonesians can use technology to their advantage. Even in small towns and villages, customers can now reach out via omnichannel including SMS, WhatsApp, Interactive Voice Response (IVR), Voicebots, Chatbots, emails or voice messages.

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Borrowers prefer to be engaged in a channel and at a time that suits their schedule rather than being constantly reminded through general communications. Failure is also less likely if customers are warned and assisted in a timely manner regarding their upcoming payments.

As debt collections become more efficient and faster, creditors with better recoveries will have a greater opportunity to expand their portfolio by offering newer segments in more remote areas that have been almost outside the credit umbrella. This is where a comprehensive technology approach to financial inclusion can also contribute, especially noting that 92 million Indonesians are in the bank and 47 million are still not served as per the 2019 Google report.

Giving credit to these people will not only open up economic opportunities for the people around the world, but also reduce the exposure of economic inequality.

Banks and other lending institutions need a more collection-driven, digitized, and customer-oriented strategy that offers the best service. In addition to boosting the debt recovery business, opening up new opportunities, and in the perspective of a once blocked practice, the digital foundation of debt collection will strengthen the customer’s loyalty, which leads to an overall better financing experience.


He is the author and CEO of Credgenics.


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