The credit, payment, and lending industry is being transformed by technology-driven innovations like buy now, pay later (BNPL) and embedded finance. These financial solutions are redefining how credit is offered and consumed, prompting a strategic shift in collections approaches.
Amid ongoing economic uncertainty, consumers are gravitating towards BNPL and embedded finance, as accessible, low-cost alternatives to traditional credit options. These offerings allow customers to manage their cash flow better while keeping their purchasing power intact.
This shift in borrowing behavior presents a golden opportunity for financial institutions to turn collections from an afterthought to a proactive, customer-centric strategy. By rethinking their approach, they can foster long-term loyalty and enhance financial wellbeing for their customers.
The Days of “Dialing for Dollars” Are Over
In times of economic uncertainties—whether macro or micro—traditional collection methods often falter, as even reliable customers may face temporary financial hardships. These periods of uncertainty, while impactful, are generally short-lived.
Historically, collections teams rigidly adhered to the rules in terms of the number of times they could contact and when they could contact. While compliant auto-dialing software checks the boxes for regulations, it often overlooks the importance of meaningful relationships.
By recognizing that today’s collections customers can become tomorrow’s loyal clients, financial institutions can maintain the potential for cross-selling and upselling in future interactions. It’s essential to treat these individuals as valued customers throughout the collection process.
Collections with Care
“Collections with care” is a customer-centric approach that emphasizes empathy and personalized engagement throughout the collections process to foster long-term brand loyalty. By leveraging advanced analytics and predictive models, credit, lending, and payment organizations can identify high-risk accounts and tailor collection journeys to fulfill individual customer needs by offering flexible payment solutions and omnichannel alternatives.
This approach not only improves repayment behaviors, but also strengthens customer trust. Through understanding customer intent and emotions, financial institutions can create collections interactions that enhance rather than erode customer relationships, promoting open dialogue about financial alternatives and demonstrating a commitment to responsible lending practices.
Collections as a Strategic Operating Unit
Delinquent loan rates and overall loan volumes are climbing, driven by significant macroeconomic pressures like inflation, rising interest rates, unemployment, and slowing growth. On the micro level, factors such as wage stagnation, soaring healthcare costs, and the rising cost of living are squeezing household finances even further.
Additionally, BNPL loans often remain underreported in borrowers’ credit histories, as many BNPL providers utilize soft credit checks for approval. Traditional credit scoring frameworks are not equipped to account for the short-term nature and unique structure of BNPL loans. This limited visibility complicates lenders’ ability to fully assess applicants’ total debt obligations, thereby increasing the risk of default for certain consumers that have potential long-term value for payment firms.
Positioning collections as a strategic function is critical to supporting sustainable growth and strengthening long-term customer relationships. As embedded finance expands—integrating credit and payment capabilities into everyday consumer platforms—organizations are rethinking how they manage repayment and delinquency. This creates new opportunities for long-term customer loyalty, and subsequent treatment strategies.
Optimizing Collections through Data-Driven Segmentation and Advanced Analytics
A strong collections strategy is a critical component of any BNPL program, influencing customer retention, repayment behavior, and portfolio performance. Predictive modeling and segmentation, powered by advanced analytics, enable firms to assess a customer’s likelihood to pay and tailor outreach strategies. This not only boosts promise-to-pay commitments but also maximizes recovery rates while nurturing long-term customer relationships.
Embracing advanced analytical tools and data-driven insights empowers organizations to segment and understand customer behavior, allowing for tailored communication strategies that foster trust and loyalty. In doing so, institutions not only navigate the complexities of BNPL and embedded finance but also enhance their reputation as empathetic, customer-focused entities committed to long-term financial partnerships.
By integrating behavioral components into an AI-driven ecosystem, you can better understand customer intent and emotions, ultimately enhancing the effectiveness of collections.
- Integrate and analyze data: Factor in human behavior through speech and text analytics to gain deeper insights into customer intent and emotions.
- Enable an AI/ML collections model: Apply predictive capabilities to improve resolution, optimize collection efforts, and increase recovery rates.
- Drive value & realized outcomes: Create value where others may not expect to find it and help close the gap between insights and action through scorecards, risk and compliance, contact strategy, customer and advisor intent.
Personalization in Customer Engagement
AI tools can communicate customized messages based on real-time data, making interactions more relatable and effective. By ensuring that messaging aligns with individual user histories and preferences, financial institutions can foster better repayment behaviors. Personalized strategies significantly improve customer satisfaction, fostering greater willingness to communicate openly with lenders about payment challenges. Focusing on delivery, timing and tone will ensure better customer experiences. Examples of focus include:
- Implementing a mechanism that allows customers experiencing financial hardships to receive temporary relief solutions reduces the likelihood of defaults.
- Timely and empathetic communication enhances collection success. Institutions should establish a system for automated reminders that maintain a supportive tone, offering help rather than merely demanding payment.
- Offering customized, flexible, repayment plans can greatly enhance recovery rates. This flexibility meets consumers’ needs and bolsters a lender’s commitment to responsible lending practices.
Ultimately, by striking the right balance between effective collections, the use of AI, and customer care, you can set yourself apart as a leader in the BNPL collections landscape.
Regulatory and Compliance Concerns
Credit, lending, and payment firms must expertly navigate complex regulatory requirements by ensuring that their marketing, advertising, and consumer disclosures are precise and transparent. Clear communication of borrowers’ obligations, terms, and any potential fees is essential to maintaining trust and meeting consumer protection standards, especially in BNPL and embedded finance models.
BNPL services often operate outside traditional banking regulations, creating oversight gaps in transparency and risk management. These firms must navigate a regulatory environment not originally designed for such innovations. In the US, laws like the Equal Credit Opportunity Act (ECOA) and Fair Credit Reporting Act (FCRA) aim to prevent discriminatory lending, but their application to AI-driven BNPL models is still unclear. The Consumer Financial Protection Bureau (CFPB) has begun reviews to address concerns over hidden fees and vague terms.
Globally, regulatory responses vary. The UK, for example, has introduced stricter disclosure rules under the Financial Conduct Authority (FCA). As AI and machine learning become more common in BNPL, regulatory clarity is essential to ensure legal compliance, reduce algorithmic bias, and safeguard consumers.
Conclusion
The modernization of credit, payments, and lending is reshaping collections into a more strategic, customer-focused function. The growth of BNPL solutions and embedded finance has accelerated this shift by enabling more flexible, accessible credit experiences. These developments offer financial institutions new opportunities to build long-term customer loyalty and support financial wellbeing.
By applying advanced analytics, behavioral segmentation, and AI-driven communication, firms can better anticipate repayment patterns and engage customers with personalized strategies. This not only improves repayment performance, but also strengthens trust and long-term relationships.
As credit, lending and payment firms navigate ongoing economic uncertainty and rapid technological change, collections is quickly evolving from a reactive function into a strategic lever for improving customer experience, protecting revenue, and supporting sustainable growth.
Collections is no longer just about recovery. See how our smart solutions drive loyalty, reduce risk, and fuel growth—start your transformation now.
