WHITE PAPER

A More Intelligent
Approach to Debt
Collections
Using Machine Learning to Improve
Profitability and Customer Satisfaction

This white paper addresses retail banks, fintech lenders and other online/offline lenders, collections
agencies, financial services consultancies and industry investors regarding:
• Advanced machine learning (ML) applications for loan collections
• Deployment models with pros & cons
• Key considerations to maximize an ML solution’s effectiveness
• Recovery and settlement ROI potential using ML

Authored by Sponsored by
EXECUTIVE SUMMARY CONTENTS
Lenders’ servicing functions and debt

1.
collections companies must contend with a
new world of cloud-based technology and
shifts in how digitally-savvy consumers interact.
These factors, combined with the market-wide DEBT COLLECTION TRENDS IN 3
orientation on being “customer first,” create a THE DIGITAL ERA
perfect storm of opportunity to become an
innovation leader.
Although industry participants are slowly
trialing and deploying in-house and off-the-
shelf AI solutions further up the lending value
2.
INNOVATIONS IN COLLECTIONS 4
chain – in origination and underwriting, for
example – fewer have committed to machine INCLUDING MACHINE LEARNING
learning (ML) led improvement in collections.
The evolving credit environment worldwide

3.
likely will create urgency in the near future,
while organizations that start implementing
now will gain a competitive edge.
SOLUTION APPROACHES 7
This paper explores the reimagined world of
collections and shares how advancements in
machine learning can replace legacy tactics
to grow recovery, reduce costs and improve
customer retention. This is of particular interest
to retail banks, fintech lenders and other online/
4.
IMPLEMENTATION MANAGEMENT 9
offline lenders, collections agencies, financial
services consultancies and industry investors.
The paper discusses leading solution
approaches and providers and offers
insights into maximizing the results of an
ML implementation. Early ROI findings also
5.
ROI REALITIES 11
are presented. The insights in this paper are
based on interviews with leading adopters and
solution providers globally as well as collections
sector trend research.
6.
APPENDIX: RESEARCH SOURCES 12
1. D
 EBT COLLECTION TRENDS
IN THE DIGITAL ERA
For creditors of the estimated $46 trillion in global consumer
debt, even incremental collections improvement is a multi-
billion dollar business opportunity.1 Those who realize this – and
outdistance the competition with respect to collections – will
have found the ‘Holy Grail’ of boosted recovery rates, lower
expenses, and customer relationship improvement. While
consumer debt mounts and collections progress, a marked
cultural and communicative shift is underway. It reflects how
consumers now interact with businesses – and ultimately, how
lenders must adjust to collect effectively today.
According to the latest International Debt Collections Handbook
(USA), the estimated success rates of collections in major
markets are as follows.2
Collections Success Rates by Market
United States United Kingdom
36.7% 65.8%
Canada China
17.7% 23.9%
Considering the over $600 billion of just US household debt
that is delinquent3, effective collections should be considered
an essential investment allocation for lenders. This logic only
grows stronger given predictions of a deteriorating global credit
environment.
Regulatory Drivers of Change
For many lenders, broad-stroke methods for collections are
still the norm. Assertive outreach activities from first party
and third party collectors and firmly-worded, matter-of-fact
communications – regardless of the default or risk profile of
the borrower – contribute to poor recovery. According to one
study by the US Consumer Financial Protection Bureau (CFPB),
one in four consumers contacted by a debt collector in the US
feels threatened.⁴ StepChange, a UK-based charity that helps
consumers with debt problems, acknowledges evidence of poor
collections practices, including pressure on consumers to make
unaffordable repayments.⁵
Persistent abuse has prompted tightened regulatory issues,
furthering weakening recovery. In May 2019, the CFPB proposed
updated rules to the decades-old Fair Debt Collection Practices
1 https://www.bloomberg.com/news/articles/2019-01-15/global-debt-of-244-trillion-nears-
record-despite-faster-growth
2 https://atradiuscollections.com/us/publications/international-debt-collections-handbook.html
3 https://www.newyorkfed.org/microeconomics/hhdc.html
4 https://www.consumerfinance.gov/about-us/newsroom/cfpb-survey-finds-over-one-four-
consumers-contacted-debt-collectors-feel-threatened/
5 https://www.reuters.com/article/uk-europe-debtcollectors-idUKKBN1950G3
6 https://www.tsico.com/2018-debt-collection-technology-changes-everything/
WHITE PAPER
Act (FDCPA), setting bright-line limits on call volume and
frequency and clarifying how collectors may use voicemail,
emails and text messages. Similarly, uncertainty around the
Telephone Consumer Protection Act (TCPA) and evolving, legal
issues associated with auto-dialers and consumer consent are
forcing a re-examination of collections practices.
Rising Customer Expectations
Lenders also feel the effects of customer satisfaction measures
tied to user experience. Reports suggests that consumer loyalty
and brand preferences are driven by a company’s commitment
to personalization, convenience, speed, accessibility and usability
of products and services.⁶
Michael Cassidy, Managing Partner at consultancy M&G
Solutions and former VP, Collections & Recovery at Prosper
Marketplace, notes that traditional banks lag fintech lenders in
terms of the use of email and social media to communicate with
customers.⁷ Fintech lenders demonstrate nearly 100% capture
of borrowers’ emails, versus a minority of traditional banks’
customers recording emails – and a small but growing number
of fintechs are leveraging social media messaging to borrowers
and live online assistance.
J.D. Power’s 2018 U.S. Retail Banking Customer Satisfaction
Study⁸ illustrates the importance of finding new engagement
channels for a generation of mobile-centric and social-media
savvy consumers. In a study on brand reputation in financial
services, Nielsen notes that strong brand equity generates nearly
1.5x more loyalty than a moderate brand, making top brands less
vulnerable to competitive marketing activities.⁹
The Efficiency and Experience Challenge
The resulting challenge according to EdgeVerve, an applications
provider offering a machine learning (ML) solution for debt
collections, is for financial institutions to maintain collections
efficiency while enhancing the customer experience. They
note the departmental disconnect between collections and
originations or customer support, for example, and how
poor experiences in collections can compromise long-term
investments in customer acquisition.1⁰ Further, those companies
keen on advancing their capabilities with the latest technology
found the levels of infrastructure sophistication and costs
(particularly related to AI and machine learning) out of reach.
Now, there’s been a democratization of
technology with companies integrating AI/ML
capabilities into cloud-based enterprise software
for the mass market.11
7 Interview - LendIt and M&G Solutions, June 14, 2019.
8 https://www.jdpower.com/business/press-releases/jd-power-2018-us-retail-banking-
satisfaction-study
9 https://www.nielsen.com/us/en/insights/article/2014/the-drivers-of-brand-equity-in-financial-
services/
10 https://www.edgeverve.com/finxedge/finxedge-collect/collect-effectively-whitepaper/
11 https://www2.deloitte.com/us/en/insights/industry/technology/technology-media-and-
telecom-predictions/cloud-based-artificial-intelligence.html
A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS 3
Wesley Humphrey, Vice President of Account Management for
Financial Services at Concentrix, a technology enabled business Collections Investment Targets
process services company, predicted during an interview for this
paper: Has your institution made new investments in any of the
following areas related to debt collection over the past two
years? (Check all that apply; n=18)
“the companies that make the boldest moves
50% 44%
while maintaining their risk posture are going Analytics/Data Operational or
to deliver the best results from collections Science incl. AI Business Process
innovation.12”
44% 39%
Technology Collection Agent
By advancing collections through personalization with emerging Staffing
technology and an in-tune customer perspective, lenders can
improve collections performance and reduce the cost to collect. 6% 39%
Other No New
Investments Investments

2. I NNOVATIONS IN Source: Atradius Collections, International Debt Collections Handbook (USA).

COLLECTIONS INCLUDING Collections Opportunities with Machine Learning

MACHINE LEARNING
The Innovation Gap
Beyond the regulatory, cost and contact nuisance issues in
collections, there’s this: Most collections practices underutilize
available data and analytics tools. They also fail to account for
digital consumers’ personalized communication preferences. As
a result, lenders’ collections rates underperform and they miss
resolution opportunities.
Companies routinely neglect the opportunity to maximize
returns through collection-related investments, often
favoring investment in customer acquisition or underwriting
instead. Strong economic conditions leading to low relative
delinquency rates have also introduced a level of complacency
around prioritizing collections investments. Those that do
invest above average in collections, predominantly invest in
analytics and data science innovations (see the accompanying
infographic, “Collections Investment Targets”)13. From a
competitive standpoint, this is important to appreciate. MIT
Sloan Management Review discovered that early adopters
better orchestrate analytics and grow revenue faster than
their peers.1⁴ They also capture early-mover advantage, which
grows in importance should economic conditions degrade.
European collections companies in particular expect this, and
are preparing for a deterioration of customers’ credit in the near-
term.1⁵
A
 s investment returns across lending
functions become more widely appreciated
and insights internalized, the next innovation
frontier will expand to collections.
Collection management has fast evolved towards digitization.
Self-service managed resolution applications are advancing, as
are chatbots, and mobile or social media experiences and other
automation tools simplifying debt resolution without human
agent intervention. These innovations are born from new,
technology-enabled predictive insights – a far cry from the days
where less sophisticated, rules-based and logistic regression
models built around limited data points guided collections
optimization.
Machine learning’s potential to improve collections outcomes
clusters around four opportunity areas.
Default Prediction & Preemption
A
 ccurate Borrower Risk Segmentation and
Outreach Prioritization
Personalized Communications
Tailored Settlement and Recovery Solutions
Each of these are explored further, below.
Default Prediction and Preemption: Today,
machine learning algorithms can apply hundreds
of input parameters without relying on predefined
rules-based programming to predict customer
delinquency. This creates immediately applicable and more

12 Interview - LendIt and Concentrix, Aug 21, 2019 14 h ttps://sloanreview.mit.edu/projects/artificial-intelligence-in-business-gets-real/

13 https://www.fico.com/en/latest-thinking/analystpartner-collateral/beyond-call-center- 15 https://atradius.us/reports/debt-collections-handbook-uk-2019.html
emerging-strategies-collecting

4 A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS WHITE PAPER

precise prediction intelligence related to loan defaults. Offerings
from a variety of vendors support the addition of “alternative
data” to default models, as well. Beyond simple metrics like
FICO score and income, companies are applying data points
from a borrower’s entire experience to improve predictions on
which borrowers will run into hardship. The prediction engine
in EdgeVerve’s FinXEdge Collect solution combines internal
transaction data (loan details, credit score, income, etc) with
external influencers (weather, job data, GDP, micro and macro
economic events) and behavioral influencers (voice data,
demographics and call notes) to predict delinquencies and
create proactive outreach strategies for high risk customers.
Practically, a lender using an ML-powered analytics framework
could rapidly understand the relationship between disparate
events, like a downward trending bank account balance and
sentiment from call or email interactions, to point to distress. The
account could receive proactive, contextual communications
without agent intervention. Concentrix’s Humphrey remarked
that social media data also presents a wild frontier of new
insight that can now be part of the prediction process.1⁶ These
machine learning solutions are also uniquely designed to get
incrementally smarter – improving predictions the more data
points and outcomes they interact with.
Accurate borrower risk segmentation and
outreach prioritization: The standard collections
follow-up effort is still human-dependent and largely
uniform. Letters, emails and calls are scripted and
grow in urgency as delinquency levels progress. This happens
regardless of the situational reality of the consumer. The
challenge, of course, is in the choice of who and how to contact.
Machine-learning based risk segmentation helps answer this by
guiding companies toward the delinquent populations most
likely to default.
Clearly, manual outreach is expensive and time-consuming.
Lenders’ call centers are finitely staffed and interactions can
be either indiscriminate or veer off script given the volume of
outreach needed by phone. Oracle and DataScience.com have
recognized that:
 nder [resource] constraints, it becomes
U
infeasible to call every debtor and a method
to select debtors to call becomes necessary.
Not calling a debtor who needs human
persuasion results in further delinquency
and greater risk for non-repayment, but
calling a debtor who doesn’t need additional
persuasion results in wasted effort.1⁷
In DataScience.com’s study, the company under study applied
a machine learning model that incorporated case interactions
between debtors and collectors to determine the value and
target timing of each call. The study proved that machine-
learning backed collection performance was materially different.
16 Interview - LendIt and Concentrix, Aug 21, 2019
17 https://www.datascience.com/blog/data-driven-debt-collection-machine-learning-predictive-
analytics
WHITE PAPER
It produced full collections on a greater percentage of cases, a
greater percentage of total debt value, and, more importantly,
these outcomes on a 20% reduction in calls.
Case Study
A $150bn+ US bank using EdgeVerve
Scope of pilot: Two Loan Products (Auto and
Personal) – $15 billion portfolio size
Challenge: A prominent regional US bank found the
effort required for sophisticated portfolio segmentation
across delinquent populations was an obstacle.
Approach: Leverage out-of-the-box machine learning
models to automate the creation and calibration of
segmentation models and create optimal contact
plans while keeping customer contact preferences and
conveniences in mind. Adopted EdgeVerve’s FinXEdge
Collect. Project began as a proof-of-concept and was
applied in production, first, as a minimally viable
product, then with additional functionality added in
phases.
Key Outcomes: The bank lowered per loan collections
investments, reduced roll rates for accounts in later
delinquency buckets and lessened future gross charge-
offs. As well, they were able to limit calls without
affecting pay rates and re-deployed resources from
accounts with low probability for recovery.
What’s Next? May expand efforts to build insights into
customer personalities for agents in live conversations
and further improve segmentation accuracy. Working
towards predicting delinquency in non-delinquent
account populations for early intervention. Will
consider additional use cases across fraud, servicing,
origination and supply chain too.
The executive leading process improvement at the bank in
the case study highlights how his company’s deployment of
EdgeVerve’s solution established these efficiencies. “Quality,
risk-based segmentation of delinquent populations[...]” beyond
basic statistical model outputs, “allowed our company to
assign channels of varying costs for collections and just call the
accounts that actually needed calling1⁸.” These prioritization
benefits go beyond just risk scoring and valuing accounts. They
even extend to assigning likelihood for how a specific outreach,
like a call, influences payment from a borrower.
18 https://www.brighttalk.com/webcast/14667/359263
A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS 5
 Personalized Communications: Targeting
solutions prove that consumers do respond
differently to varied collections efforts. In this,
machine learning is restoring humanity to
collections. These solutions are providing lenders flexibility and
offer engagement recommendations with customers that:
• Suggest which communication mediums are most effective
• Deliver messages with tonal and sentimental variety
Machine learning lets lenders spurn generic sequencing of
calls or letters to customers. Instead, it guides outreach where
the chance of effectiveness is highest. For some populations
certain outreach channels won’t be effective to collect
– machine learning discovers this. It can guide outreach
anchored in a customer’s preferences and increase the likelihood
for response while mitigating against a soured customer
relationship. Most significantly, an increasing percentage
of consumer borrowers show a preference for electronic
interactions only and ML automatically highlights who those are
likely to be.

Modern AI-Based Segmentation Approach

INPUTS

Internal External Behavioral

Transactional Data Influencers Influencers

• S ervicing Systems (Payment • R

 isks – Weather, Environmental, • C
 all Transcripts/Voice Data
History, Delinquencies, etc.) Siesmic, etc. • C
 ollector/Agent Notes
• Income Expense Data • Job Data • R
 ight Party Contact &
• Credit Score • G
 DP, Consumer Price Index, etc. Promise to Pay Patterns
• Loan Details (Amt, Rate, etc.) • Local News • C
 ustomer Demographics
• Obligor Details • Other Socio-Economic Factors • O
 ther Textual Data

ANALYSES

Artificial Text
Neural Classification
Network

Gradient
Boosted Sentiment
Trees Analysis
Generalized Natural
Linear Language
Regression Processing

INSIGHTS

Prediction Customer
Engine Insight

Personalized Predictions & Recommendations Recommendations per Behavioral Aanlysis

• Roll Rate Prediction Channel Tone
• UPB at Risk/Loss Severity Letter Phone Soft Moderate
• Personalized Resolution Strategy Email SMS Aggressive
Timing Personality Insights
Before 9 AM 9 AM to 6 PM Interests: Baseball
After 6 PM Aggressive and Combative

6 A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS WHITE PAPER

Executives in a FICO sponsored study shared how individualizing
collections becomes a competitive differentiator. One
respondent shared that technology can even help “assign the
right type of agent (in terms of skill set, tone and tenure) to a
particular account.”
TrueAccord, a six-year old fintech company, offers a highly-
automated debt collection agency and behavioral analytics
service for lenders. They deploy a virtual assistant that flexes its
level of empathy to fit the modeled preferences of a customer.
Company CEO Ohad Samet acknowledged in an interview for
this paper that ML works because “customers want to feel like
they’re heard and like they’re getting the customization they
need .”1⁹
Tailored Settlement and Recovery Solutions:
To this point, the industry has lacked the tools to
understand precisely what hardship, repayment and
recovery terms are attractive over time. The result
is an over reliance on one-size-fits-all solutions that rarely fit the
borrower’s unique hardship circumstances. Consideration needs
to be given to the individual customer’s hardship status and
what makes economic sense to the lender. For example, one
interpretation to make is whether the borrower is well-intended
but temporarily unable to pay, or whether they may act
antagonistically over the course of the repayment relationship.
In addition, offerings must take into account the company’s
external brand and the expectations of its investors and partners
– particularly if it sells loans to third parties. For those digitally-
friendly lenders who also are experimenting with point-of-
sale financing, the treatment of borrowers also impacts their
relationship with the retail merchants, notes Michael Cassidy of
M&G Solutions.
According to Jason Swift, Chief Operating Officer at Best Egg, a
prominent fintech lending brand owned by Marlette Funding,
the challenge is that since
“a lender only gets a chance or two to engage
productively with a consumer, particularly
when they’ve gone into delinquency status, it’s
important to marry the financial hardship event
with the right payment program solution.2⁰”
Best Egg is exploring machine learning to better understand
what recovery solutions work over time, to optimize offers and
deliver a compelling, mutually-beneficial solution early on. He
sees competition with debt consolidation companies as an
important motivator and suggests that “leveraging data points
on which solutions trigger responses – and are embraced by
clients over time – is a near-term opportunity for machine
learning.”
19 https://www.americanbanker.com/news/can-ai-make-debt-collection-smarter-and-easier
20 Interview - Lendit and Best Egg/Marlette Funding, August 12th, 2019
WHITE PAPER
3. SOLUTION APPROACHES
Before deploying a machine learning solution, lenders need
to take into account a variety of internal factors. These include
organizational and technological maturity, budget, available
headcount, competencies and existing systems. Company
culture and appetite to innovate may also play a role. Below, two
common machine learning implementation approaches are
discussed. Depending on the factors in play, one or the other of
these may prove most attractive.
Outsourcing vs. Overlay
Based on business requirements and existing architecture,
lenders will likely choose between one of two machine learning
deployment approaches, which leverage existing collections/ML
technology and solutions to varying degrees:
1. O
 utsource most of debt servicing and related collections
to a vertically integrated, third-party collections agency
that incorporates ML technology and performs decision
model optimization, outreach and reporting on behalf of the
lending institution.
2. O
 verlay a data, analytics and application layer, powered
by machine learning, that sits on top of existing in-house
collections, customer relations and communications systems
and staff.
Outsourcing
Within the first model, a lender engages a collection service to
act on its behalf. The provider is assigned a book of debt and it
handles the entirety of collections. A primary solution provider
here is TrueAccord. CEO Ohad Samet shared, for this research,
that the company receives customer data and basic account
information from a lender and then manages the process
entirely separate from the lender’s servicing department.21
TrueAccord’s collections platform uses machine learning to
create digital-first consumer experiences that are uniquely
tailored to each borrower. For example, for customers who visit
but drop off a payment-related page, the platform will send
informational and encouraging messages to motivate the
customer to complete a payment or set up a payment plan.
Meanwhile, to another customer who visited account support
webpages, it would send messages that provide account
information, resources and customer support access.
TrueAccord’s platform creates a sophisticated interaction model
with a consumer and uses a decision engine to compare the
consumer to the millions of other consumers who have passed
through its platform. Based on those hundreds of millions of data
points, it predicts the consumer’s reaction to communication
frequency, timing, channel, and content.22 The behavioral data
is aggregated across its lender customers and anonymized. A
primary benefit here is that lenders don’t have to work through
the cost and compliance issues associated with incorporating
machine learning applications – whether internally built, or
externally bought – into their service models. This solution
21 Interview - LendIt and TrueAccord, August 1st 2019
22 https://www.trueaccord.com/product
A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS 7
reduces the need for in-house data science expertise and
ongoing model QA. While TrueAccord is routinely audited by
its customer base, it stays at the leading edge of regulatory and
compliance issues.
TrueAccord’s solution enforces compliance rules on contact
timing, frequency, and included disclosures. It allows easy
implementation of new rules at scale (as state or country
level rules may vary), and keeps a detailed event log for audit
purposes. Another benefit of this is approach is avoiding “having
to cobble multiple platforms and services together to obtain all
needed functionalities.23”
Another outsourcing-based solution provider, Australian-based
InDebted, cites the compliance advantage of the outsourcing
approach. They share how fully centralized systems include a
compliance firewall that enforces compliance at every stage of
the recovery process.2⁴
The downside of outsourcing is the transfer of control of
the customer experience to a third-party. This is particularly
concerning to institutions with wider customer engagement
(across banking or other loan products, for example) or for
investors that purchase debt that is serviced by another party.
Concerns on data loss and leakage could be more pronounced
during the transition to an outsourced provider.2⁵ In some cases,
lenders could lose visibility into collections approaches, or lack
explainability and auditability of an outside provider’s models. As
well, lenders will pay a premium with this approach – up to 33%
on each dollar collected.2⁶
Overlay
With an overlay approach, a third-party offers a robust platform
of machine learning and AI functionality pre-configured to
optimize collections decisions and next steps. These work in
tandem with existing in-house systems, like a CRM or dialer, for
example, but let vendors make use of machine learning insights
in a matter of weeks while mitigating data management and
compliance concerns by keeping data “in-house.”
EdgeVerve, an overlay model leader, finds benefit in a
streamlined integration with existing servicing and collection
systems using APIs. Their platform ingests transactional data,
external influencer data and a variety of behavior influencers
to segment, make roll rate predictions and offer personalized
resolution strategies. These are synced with core collections
systems and provided to agents through visual dashboards. With
this approach, benefits may include:
• Closer involvement and learning by one’s in-house data
science team
• A transparent data model
• A unified view of customer accounts and behavioral
interpretation across the lending function
• Explicit auditability for regulatory purposes
23 https://www.fico.com/en/latest-thinking/analystpartner-collateral/beyond-call-center-
emerging-strategies-collecting
24 https://www.indebted.co/blog/what-is-your-collections-process
25 https://www.edgeverve.com/finxedge/finxedge-collect/debt-collection-whitepaper/
26 https://www.wired.com/2014/08/trueaccord/
27 https://www.edgeverve.com/finxedge/finxedge-collect/collect-effectively-whitepaper/
8 A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS
• Easy trial and entry (low capital requirements)
• A ccelerated time to adoption
• Minimal training and process changes
• Time to market that’s comparable to outsourcing and better
than “design from scratch”
• Lower overall total cost of ownership
 ith an overlay approach, a company can
W
maintain its core platform technology
(including: collections, servicing, internal risk
data, CRM and communication/dialer tools)
and external systems.
That company will reap the benefits of machine learning model
creation and periodic and incremental self-optimization of the
model by an external party, without internal disruption. When
faced with more complex implementation scenarios, companies
with in-house collections will often defer on innovation because
of concerns around a rip-and-replace technology campaign.2⁷
With an overlay, implementation times can range from as little as
four to six weeks. Here, the first phase will consist of data hosting
and normalization and a second phase of model development.
Model validation may be as short as one to two weeks
depending on the lender’s compliance processes. From there, IT
can move the model to production relatively easily because of
the overlay approach.2⁸
Julie Signorille, Chief Operating Officer at Citizens Bank, sees this
approach promoting transparency and auditability, which helps
their internal risk teams. For this research, she called attention
to the solution model’s explainability and how EdgeVerve’s
application helps her team see what is going on in the model
with an end-to-end audit trail.2⁹
Another benefit is that companies can unobtrusively pilot
smaller campaigns at a fraction of the cost of building solutions
from scratch internally, or carving out the collections function to
a third party. Best Egg sees the benefit of rapid, easy to deploy,
internal models as a way to build synergies throughout the
organization. They expect sharing of “[...] insights upstream across
the lending value chain, from origination and underwriting, to
collections.”
Finally, overlay strategies allow for more flexibility integrating
customer and decision-making systems built in-house with the
ML platform. For example, Michael Cassidy of M&G Solutions,
gives the example of being able to blend ML with existing rules-
based collections logic that explicitly incorporates the lender’s
business strategy: “A bank may want to use a pull-forward
strategy in collections to prepare for securitization of a portfolio
- this strategy best is represented by rules-based logic that is
blended with the ML learning model.3⁰“
28 h ttps://www.brighttalk.com/webcast/14667/359263
29 https://www.lendit.com/usa/2019/sessions/usa-2019-ai-in-lending-benefits-real-results-
explainability
30 Interview - LendIt and M&G Solutions, June 14, 2019.
WHITE PAPER
4. IMPLEMENTATION
MANAGEMENT
Regardless of the preferred deployment approach, lenders need
to be aware of internal factors that may impact everything from
getting a project off go, to maximizing results. Some of these key
points, based on industry feedback, are outlined below.
Strategic Alignment – Internal & External
Natasha Anand, Senior Director of Customer Operations at online
lending platform OppLoans, believes that establishing strategic
priorities before exploring new technology is critical: “Set the
strategy first and know exactly how a third party provider could
supplement your existing operation.” In OppLoans’ case, ML-
based solutions were considered that enhanced the company’s
high-touch, customer-centric support mission. Technology
enhancements were vetted for their “fit into our existing
customer strategy and how [they could] supplement collections
efforts without compromising customer service.” By having
technology complement a pre-existing strategy, instead of
driving it, adopters can better assess if the technology is actually
improving collections.
“Without having clearly defined metrics of how
you’re going to measure success of any new
technology versus what you’re currently doing,
anything could look great. But if you’re not
comparing or testing, you’re going to gravitate
towards whatever is new.31”
At Best Egg, COO Swift recognizes the imperative for those
building and managing machine learning models to “[...] come
and listen to customers. They need to sit and do side-by-sides.
They need to talk to the agents that are on the phone that are
hearing from the customers on a daily basis, and understanding
the financial hardships. They need to listen to potential fraudsters
and understand the overall process and strategy that takes
place.” This first-hand exposure is critical for one’s solution vendor
as well as one’s internal technology team. Without the front-line
perspective to guide model making and optimization, machine
learning adopters may missassign resources, focus on delinquent
populations unable to pay, or otherwise personalize incorrectly.
“Once we understood the consumer side,” Swift notes,
“that’s when we truly got the predictability of our models.32”
Time-to-Value Targets
It is often surprising how straightforward the application of
machine learning solutions can be from an implementation
standpoint. Whether a company pursues an outsourced or
overlay model, integration with existing collections and servicing
systems is reasonably routine. Out-of-the-box, optimized models,
simple API connections or fully encapsulated external solutions
31 Interview - LendIt and OppLoans, August 19, 2019
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make the technology’s role in time to value fairly simple. Many
of the vendors interviewed noted weeks, not months, to run
an initial model (assuming a company is organized internally).
Research noted that it is actually internal readiness that may
slow the achievement of value. Companies must preemptively
consider the following:
Model auditability and data management
expectations. Internal risk teams should have
prepared questions for vendors to accelerate the
compliance screening effort and reduce delays
during evaluation and testing. Every operations
team needs to be able to “explain” the model – in terms of data
being used and parameters being applied – to understand what
drives the approach and rationalize the technology to regulators
or internal audit teams. Define the answers that will be needed
early so vendors can respond sufficiently.
Risk tolerances for data use. There’s institutional
variety in terms of how much customer data and
insights within an organization a company is
comfortable using. In some instances, a customer
may have a variety of loans, credit products
and accounts. There needs to be internal calibration as to the
amount of data that will be used and shared for collections
model incorporation, especially as it relates to privacy and to
cross-selling.
Agent Training
Nearly every interviewee noted that up-trained staff would
maximize the value associated with machine learning driven
insights. While machine learning may drive smarter application
of agents’ time to cases with a higher probability of resolution,
the agent must ultimately engage the customer to achieve
a desired outcome. They must do this while wielding tone,
outreach and resolution tactics appropriately. Companies
need to ensure agent preparedness with different types of
communication channels and customer solutions. There is an
internal learning curve and agents need time to be educated
accordingly.
Preferred Partnership Approach
It’s important for companies to define how hands on they
ultimately want to be first – and keep in mind the resources
available to support enhancement plans. Of course, these
available financial and human resources, plus strategic priorities,
will guide decision making as well.
During its interview for this paper, OppLoans noted a preference
for high-touch and high-control. This led them to trial a solution
that augmented existing, internal collections for a small portion
of delinquent business that had been pre-determined to likely
respond to digital or automated interactions. This preference for
in-house ownership and oversight prompted a smaller, more
internally-managed machine learning experiment. Others have
noted where a vendor, despite being an outside third-party,
remote connects with existing systems and agent applications.
32 Interview - Lendit and Best Egg/Marlette Funding, August 12th, 2019
A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS 9
For example, the vendor may access a client company’s CRM
live, while managing a separate auto-dialer application. Here,
the vendor becomes a functional extension of the company’s
internal collections team. This may be a welcomed hybrid
approach for a company that doesn’t want a ML-derived “score”
given to delinquent accounts from a passive vendor, but wants
to add to staff capabilities with outside support.
TrueAccord’s CEO Samet recognizes a segment of the market
that doesn’t want to figure out how to adopt machine learning
technology into their legacy collections systems, but does want
to capture the insights in some way. These companies don’t
want to “[...] figure out how to implement it, which would be
too costly and complex.” In this case, they’d prefer a “completely
encapsulated solution.33”
Concentrix’s Humphrey notes that while many prominent
lenders have phenomenal data science teams and machine
learning capabilities, “[...] that doesn’t mean that they’re investing
in them to support collections.” In some cases, his company is
responsible for full contact strategy design and implementation,
in other scenarios they provide insights or support existing work.
He guides clients to consider service providers to optimize
those lines of business that haven’t been prioritized with internal
investment:
“The landscape is littered with technology
investments that didn’t produce any value, often
because [lenders have] the platform without the
knowledge of how to utilize it.34”

Key Solution & Implementation Considerations

Identify partnership
roles with ML solution Specify ML model
provider auditability and
1 decision-inference
autonomy
3
Enhance collections
agent capabilities
to address
more
Align challenging
customer 2 4 cases
strategies
with ML
requirements 6

Decide whether to 5
outsource ML-based
collections, or overlay
an ML platform on
in-house applications, Organize for a
or develop ML engine fast-track pilot
in-house

33 Interview - LendIt and TrueAccord, August 1st 2019 34 Interview - LendIt and Concentrix, Aug 21, 2019

10 A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS WHITE PAPER

5. R
 OI REALITIES reported reduced roll rates well beyond the 25 basis points
originally targeted, across the 0-30 day and 30-60 day buckets.
Paul Jozefak, CEO of European collections fintech Receeve,
Others share how digitized collections and more modernized
sees machine learning’s benefit to collections focused around
outreach and personalization have a material impact on
behavioral segmentation. In an interview for this paper, he
recovery. One study shows how users who click collection emails
estimated that an effectively deployed solution can increase
are more engaged, with up to 35% of click-throughs ending in a
recovery rates by 20 to 40% and decrease collections costs
payment.36 These communications, sent based on user behavior,
on a per loan basis by 70 to 90%.35 (Mr. Jozefak also asserted
also show up to 300% better performance.
that a solution designed with the European market specifically in
mind will be able to flex more readily with country-based needs Important too, is general industry belief that applying machine
and therefore reap the greatest ROI efficiencies in that region.) learning is more than just a cost and FTE savings play. With
machine learning, companies are seeing the smartly applied
A regional US bank interviewed for this report asserted that resources and up-leveled, agent staff on more complex cases as
repurposing staff efforts to calling higher-risk cases was one value accretive.37
of the best outcomes from machine learning guidance. They

Potential ROI of Machine Learning in Collections

15-20%
Charge-off
300% reductions 20-40%
Increase Increase
in communication 25-50 bps 70-90% in recovery rates
engagement Decrease in Decrease in
early bucket collection costs/
roll rates loan

CONCLUSION
While the companies discussed here are experiencing transformational collections benefits from machine
learning, the technology is still lightly adopted in the space. Cost, compliance and complexity concerns
– though often unfounded and born from enterprise AI fallacies – keep many lenders sidelined. Others
continue to target most of their innovation spend to the customer acquisition and underwriting functions.
However, forecasted shifts in the credit cycle may quickly change that. Those that proceed now – those
with well-defined, manageable use cases, bought-in executive leadership and strong compliance teams to
enforce audit mechanisms – will leapfrog laggard competition in collections performance. This success may
even green-light additional applications for AI in the lending process; expanding use cases to fulfillment and
payments or compliance and fraud, further enhancing performance.
Innovative debt collectors don’t see machine learning as a way to mindlessly automate delinquency
interactions or apply the same outdated contact methods at scale. To them, machine learning is a way to
enhance customer relationships and collections effectiveness. It’s a ‘more intelligent’ view of collections that
is now proving itself in the field.

35 Interview - LendIt and Receeve, July 30th, 2019 37 h

 ttps://www.lendit.com/usa/2019/sessions/usa-2019-ai-in-lending-benefits-real-results-
36 https://blog.trueaccord.com/2015/03/the-effects-of-digital-collections-an-infographic/ explainability

WHITE PAPER A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS 11

APPENDIX: RESEARCH SOURCES
American Banker : https://www.americanbanker.com/news/can-ai-make-debt-collection-smarter-and-easier
Atradius Collections : https://atradius.us/reports/debt-collections-handbook-uk-2019.html
Atradius Collections : https://atradiuscollections.com/us/publications/international-debt-collections-handbook.html
Bloomberg:https : https://www.bloomberg.com/news/articles/2019-01-15/global-debt-of-244-trillion-nears-record-despite-
faster-growth
Consumer Financial : h
 ttps://www.consumerfinance.gov/about-us/newsroom/cfpb-survey-finds-over-one-four-consumers-
Protection Bureau contacted-debt-collectors-feel-threatened/
Data Science : https://www.datascience.com/blog/data-driven-debt-collection-machine-learning-predictive-analytics
Deloitte : https://www2.deloitte.com/us/en/insights/industry/technology/technology-media-and-telecom-
predictions/cloud-based-artificial-intelligence.html
EdgeVerve : https://www.edgeverve.com/finxedge/finxedge-collect/collect-effectively-whitepaper/
EdgeVerve : https://www.edgeverve.com/finxedge/finxedge-collect/debt-collection-whitepaper/
FICO : https://www.fico.com/en/latest-thinking/analystpartner-collateral/beyond-call-center-emerging-strategies-
collecting
InDebted : https://www.indebted.co/blog/what-is-your-collections-process
J.D. Power : https://www.jdpower.com/business/press-releases/jd-power-2018-us-retail-banking-satisfaction-study
Lend Academy : https://www.lendacademy.com/the-collections-procedure-at-prosper/
Lend Academy : https://www.lendacademy.com/podcast-135-ohad-samet-trueaccord/
LendIt : https://www.lendit.com/usa/2019/sessions/usa-2019-ai-in-lending-benefits-real-results-explainability
MIT Sloan : https://sloanreview.mit.edu/projects/artificial-intelligence-in-business-gets-real/
New York Federal Reserve - Household Debt & Credit Report : https://www.newyorkfed.org/microeconomics/hhdc.html
Nielsen : https://www.nielsen.com/us/en/insights/article/2014/the-drivers-of-brand-equity-in-financial-services/
Reuters : https://www.reuters.com/article/uk-europe-debtcollectors-idUKKBN1950G3
TrueAccord : https://blog.trueaccord.com/2015/03/the-effects-of-digital-collections-an-infographic/
TSI : https://www.tsico.com/2018-debt-collection-technology-changes-everything/
Wired : https://www.wired.com/2014/08/trueaccord/

12 A MORE INTELLIGENT APPROACH TO DEBT COLLECTIONS WHITE PAPER

 About EdgeVerve Systems Limited
EdgeVerve Systems is a wholly owned subsidiary of Infosys Limited. We help global corporations sense, influence,
fulfill and serve the needs of digital consumers and leverage the potential of their business ecosystems. We define,
develop and operate innovative cloud hosted business platforms and software products. We focus on realizing
business outcomes for our clients by driving revenue growth, cost effectiveness and improved profitability.
Edgeverve’s FinXEdge Collect is a data-driven intelligence application powered by advanced Machine Learning that
helps lenders and debt collectors reduce delinquency rates and charge-offs, improve operational efficiencies and
enhance customer experience.

For further information, please visit our website: edgeverve.com and

the FinXEdge Collect page: www.edgeverve.com/finxedge/finxedge-collect/

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