Written by: Mike Senecal
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- A majority of debt collection companies experienced increased account volume over the past 12 months, according to a new report from TransUnion.
- More firms than ever are turning to AI solutions to predict and segment accounts, forecast payment outcomes, and facilitate self-service.
- The move toward AI is part of the industry's shift to alternative collection methods that prioritize direct consumer engagement.
The latest Household Debt and Credit Report from the New York Fed confirms household debt totals are still rising. The mounting numbers underscore the growing financial strain on consumers from increasing account balances and worsening delinquency rates across mortgages, auto loans, student loans, and credit cards.
With unemployment, inflation, tariffs, and political uncertainty all on the rise, many consumers find themselves unable to manage their debt obligations sustainably. Inevitably, some dip too deeply into savings or additional credit only to spiral further into default, bankruptcy, and deeper economic insecurity.
That makes the thousands of firms comprising the $18 billion U.S. debt collection industry more vital than ever to help lenders stem those tides and keep the total cost of consumer credit down. When collection agencies do their jobs effectively, the lending industry — and the economy as a whole — work better for everyone.
The rise of AI-fueled efficiencies in the $18 billion U.S. debt collection industry help keep the cost of credit down for everyone.
Fortunately, “Preparing for Opportunity,” a new study by the TransUnion credit bureau, portrays an industry that is embracing investment and innovation to meet the demands of today and tomorrow.
According to the study, a majority of debt collection companies have experienced increased account volume over the past 12 months. Many are adopting artificial intelligence and machine learning technologies to help agents be more productive and manage risk more efficiently. They’re also using email and SMS more frequently and introducing clients to streamlined self-service portals while remaining in compliance with communications protocols.
As a whole, TransUnion found that modern debt collection relies heavily on data analytics, AI, and digital footprints to track consumer behavior and engagement. Pressure and persistent outreach still play a role, but many agencies now focus on compliance-driven, less confrontational methods.
“The debt collection industry is undergoing a period of transformation — driven by external regulatory and economic pressures,” the study’s author, Adam Parks, summed up. “In response, businesses are strategically enhancing their operational efficiencies and service quality to improve the consumer experience.”
Portrait of an Industry in Transition
TransUnion looked at Q3 2024 data representing 225 creditors, debt buyers, agencies, law firms, outsource partners, and others. The study also drew on key collections trend data and consumer credit trend data to provide additional context.
That context is rather bleak. It’s a picture of unemployment rising and consumers, overwhelmingly concerned about inflation, fearing unexpected income changes. Aggregated excess payment data from TransUnion bears out these realities, with more consumers paying “less in excess of their required minimum monthly payments,” to use the phrase in the study.
That technical expression means fewer consumers are paying significantly more than the minimum payback amount required on their loan accounts. This article from PYMNTS, one of many on the subject, refers to it as the “minimum payment effect.”
The study noted, however, that consumers approaching the limit of what they can reasonably bear as debt hasn’t deterred them from borrowing more.
“New origination volumes were all a steep increase from the previous quarter,” the study noted.
Along with debt, the collections industry is rising to meet the growing challenge of delinquent borrowers. Firms with more than 100 employees are growing faster than smaller companies, suggesting a digital network effect. Moreover, most firms expect volume to continue to increase by 10% or more for the foreseeable future.
That puts BPO (business process outsourcing) on the docket for an increasing number of firms leveraging offshore and near-shore workforces, especially in India. However, only 35% of bona fide collection agencies (as opposed to debt buyers and others) avail themselves of BPO services.
Specialized tools such as auto-dialers, speech analytics, text/SMS messaging, self-service portals, and interactive voice systems help others automate key services.
Investing to Boost Bottom-Line Productivity
Digital transformation is fueling this change in collections. For example, companies are adopting a wide variety of tools and platforms to streamline and diversify client outreach via email and SMS tied to analytics.
Tellingly, only a small minority of companies consider compliance as their prime motivation to invest in tech, with a majority spending to increase agent productivity and improve margins.
That has led increasing numbers of firms to invest in AI solutions, including self-service options, to help users learn more about their debt and explore options. For example, nearly 90% now use self-service payment portals compared to less than 80% the previous year.
Therefore, it shouldn’t be a surprise that the number of debt collectors investing in AI and machine-learning technologies grew from 11% in 2023 to 18% in 2024, according to the study. That 40% year-over-year increase denotes a widespread acceptance that modernization through exploring AI technologies will increasingly become the norm.
Interestingly, deployments of conversational AI technologies seem to be lagging, perhaps owing to the increased training and resources necessary for seamless operation.
Still, “almost half of companies that had no plans to use AI/ML technology in 2023 are now considering third-party or in-house solutions,” the study noted.
Soon, AI will be in more debt collection companies to guide consumers, analyze account lifecycle workflows, monitor performance, predict payment outcomes, and anticipate consumer behavior, in part by segmenting and profiling customers for various workflows.
Increasingly, digital debt collectors are also highly concerned about data security. They’re also looking to balance investments against the bottom line and innovating while remaining compliant, customer-focused, employee-driven, and profitable. Many also see diversification as a key to sustainability.
None of this will make those collection calls any more welcome for consumers. However, the TransUnion study suggests that the future version of the debt collection industry will be more effective than today’s, thanks to the power of technology.
“The volume of accounts acquired or managed has increased and is expected to continue to do so over the next two years,” the study noted. Consequently, almost three-fourths (73%) of debt collection firms are expecting an increase in technology costs to match.
