Analyzing the Role of Digital Communication Channels in Debt Collection

Abstract

Recent changes in federal US regulations allowed debt collection agencies to expand their channels of communication from physical letters and phone calls only, to adopt digital communication channels including emails and SMS text messages. With changing demographics, debt collection companies stand to gain substantially if they can improve when and how they communicate with their account holders, both in driving more payments and in saving money through the reduced cost of the digital channels. This study explores the data provided by a leading debt collection agency on their debt holders. One of the key issues is that there is a limited understanding of the extent to which the new channels are affecting customer behaviors and payments in terms of frequency and timing. To answer these questions, we apply statistical models analyzing the impact of the various communication channels on the probability that a debtor pays and how much of their outstanding debt that they pay. Initial analysis is based on A/B testing of the various customer segments and whether their payment activity increased. We then draw insights on the channel and the timing of communication on the amount of revenue earned by the agency using an adstock-like model. Modeling communication is key to understand and better manage debt collection, increasing the likelihood of payment while indicating potential for saving costs and improve customer satisfaction.