The market for debt collection software is expected to register a CAGR of 9.7% during the forecast period (2021 - 2026). With changing lifestyles and increased purchasing power, consumers have become more empowered than before, and for every informed purchase decision made, they are creating a debt cycle. Whereas managing a debt cycle guarantees success for the business, accounts receivable is probably one of the most critical factors determining whether the company can withstand and operate with its competitive advantage.
- Consumer debt is primarily of credit card debt, medical bills, mortgages, student loans, and auto loans forms. Businesses often strive with accounts receivable because of a mixture of factors. Untimely invoicing, no collection process, sending the wrong invoices, or absence of a dedicated accounts receivable employee or team managing accounts receivable.
- Nevertheless, as long as the business has the right people, processes, and tools, such as debt collection software, managing accounts receivable becomes more straightforward and easy to manage. According to a study by PayStream Advisors, companies are witnessing a 10-20% decrease in Days Sales Outstanding (DSO) after implementing debt collection software.
- The debt collection software industry is being driven by various factors, such as managing and automating all debt collection and recovery processes, rolling out self-service payment models to quicken the collection process due to the increased need to control, rise in need to reduce bad debt and improve the cash flow while optimizing collection costs, and surge in demand.
- The increasing debt globally has been posing challenges for debt recovery. In the United States, consumer debt has increased nearly by USD 2.3 trillion since the height of the Great Recession in 2009, expanding across most debt products to top USD 14 trillion in 2019. While high debt often carries a negative connotation, the positive side is that the average FICO Scores of the US consumers have never been more top. The increased rate of debt taking in the United States and other countries is expected to drive the market for debt collection software across various verticals.
- Further, the outbreak of the COVID-19 pandemic has been increasing the challenges posed for debt recovery. Several state officials and regulators have taken steps to minimize the economic burdens stemming from COVID-19 on consumers in their states, including by placing additional restrictions on debt collection practices. In March 2020, Massachusetts Attorney General (AG) Maura Healey implemented and filed with the Secretary of State’s Office an emergency regulation designed to curb debt collection in the Commonwealth during the COVID-19 pandemic.
- Variations in enforcement procedures and order for payment procedures for the duration of the emergency and significant adverse economic effects especially rising unemployment may make it further complicated, and in some cases, restrict the power to enforce claims. On the other hand, the COVID-19 crisis is expected to increase the number of overdue loans and utility bills within the medium term, creating new business opportunities for debt collection software.
Key Market Trends
Increasing Automation in the Debt Collection Process to Drive the Growth
- Debt collection software offers various features, like customer segmentation based on collection scenarios, automated customer reminders, email and letters, streamlined communication with clients, suitable payment plans, transaction management, commission management, compliance management, invoice management, payment, and others resulting in reduced human intervention and automation of redundant tasks. This has led to higher efficiency operations and a lowering of the excessive cost incurred due to these processes, thus increasing the market growth of debt collection software in the market.
- Cloud computing technology is becoming mainstream, and the seamless connectivity provided by the cloud is making it accessible and is also increasing the ease of sharing data and applications. According to the Right Scale’s annual State of the Cloud Report 2019, 91% of businesses use public cloud, and 72% use a private one. Most enterprises use both options, with 69% of them opting for the hybrid cloud solution. Hence, the advent of cloud technology is also boosting the growth of the market.
- Though government regulations regarding data security are becoming stringent, Government policies and increasing investments in BI analytics tools are developing the market for spend analytics worldwide. Many global companies are collaborating with national governments to enhance spending and procurement processes using spend analytics tools to deliver a practical solution in society.
- Legal notices no longer pose a threat to debtors, and increasing rules and regulations have made the collection process even more complicated. Hence, many telecom and utility companies are using debt collecting software to benefit significantly increased online transactions. Companies have introduced a self-service payment platform to keep track of their customers, follow up on the bill payment, and maintain their credibility.
North America is Expected to Hold Significant Share
- The North American region poses significant opportunities for the growth of the debt collection software market. The region has been facing several challenges in terms of debt recovery. Even if American student loans were to be excused or restructured, there would still be trillions of dollars left to be repaid in the United States alone. Yet, the debt collection industry has seen very little of the past decade's fintech revolution.
- However, traditional methods of recovering debt like aggressive calls, door-to-door collections, and invoice reminders have proven unsuccessful. Inefficient collection methods based on poor strategies and imperfect models hike operating costs and impact the liquidity position. According to a Collect Edge whitepaper, the industry average of unpaid debt collection rate stood at just 20% in 2019, compared to 30% a year ago.
- Technology-based debt collection is expected to lead to better client engagement. Apart from harassment from under-trained professionals, sometimes the debt information is incorrect or even inflated. The Consumer Financial Protection Bureau mentioned that 39% of the United States' complaints regarding debt collection were because customers were contacted for the capital they did not owe in the first place. With such instances increasing, the industry has been witnessing several challenges in debt collection.
- It is estimated that the advent of AI's predictive analytics will improve forecast numbers. Still, it will also be able to analyze client communication preferences and the extent of chasing that each one will require.
- High demand for commercial and consumer debt recovery services across the BFSI organizations is an important factor anticipated to drive the growth of the financial institutions operating across the region, thereby boosting the adoption of debt collection software.
The debt collection software market is fragmented. The degree of fragmentation will accelerate during the forecast period as the various industries are experiencing a massive transformation, due to technological advancement, and the players are competing in providing the best solution. Some of the recent developments in the market are:
- In May 2020, Chetu, a leading developer of custom software solutions, was named the winner of a Silver Stevie Award in the Founding Team of the Year category for the 18th Annual American Business Awards. More than 3,600 nominations from organizations of all sizes and various industries were submitted for consideration in a wide range of categories.
- In April 2020, Financial technology leader FIS announced that FIS Ventures, the newly created corporate venture investment division of FIS, has launched an effort to invest a target of USD 150 million in promising fintech startups over the next three years with a focus on emerging technologies, such as artificial intelligence and machine learning, digital enablement and automation, data and analytics, security and privacy, distributed ledger technology, and financial inclusion.
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1.2 Scope of the Study
4.2 Industry Attractiveness - Porter's Five Forces Analysis
4.2.1 Bargaining Power of Suppliers
4.2.2 Bargaining Power of Consumers
4.2.3 Threat of New Entrants
4.2.4 Threat of Substitutes
4.2.5 Intensity of Competitive Rivalry
4.3 Assessment of Impact of COVID-19 on the Global Debt Collection Software Market
5.2 Market Drivers?
5.2.1 Increasing Automation in the Debt Collection Process
5.2.2 Outsourcing Debt Recovery to Specialized Debt Collection Agencies
5.3 Market Restraints
5.3.1 Inadequacy of Legacy Systems
6.2 By Organization Size
6.2.1 Large Enterprises
6.2.2 Small and Medium-sized Enterprises
6.3 By End User
6.3.1 Financial Institutions (Banks and NBFC)
6.3.2 Collection Agencies
6.3.5 Telecom and Utilities
6.3.6 Other End Users (Real Estate and Retail)
6.4.1 North America
6.4.4 Latin America
6.4.5 Middle East & Africa
7.1.1 Fidelity National Information Services Inc. (FIS)
7.1.2 CGI Inc.
7.1.3 Fair, Isaac and Company (FICO)
7.1.4 TransUnion LLC
7.1.5 Pegasystems Inc.
7.1.6 Temenos AG
7.1.7 Intellect Design Arena
7.1.8 Nucleus Software Exports Ltd
7.1.9 Chetu Inc.
7.1.12 KuhleKT Pty Ltd
A selection of companies mentioned in this report includes:
- Fidelity National Information Services Inc. (FIS)
- CGI Inc.
- Fair, Isaac and Company (FICO)
- TransUnion LLC
- Pegasystems Inc.
- Temenos AG
- Intellect Design Arena
- Nucleus Software Exports Ltd
- Chetu Inc.
- KuhleKT Pty Ltd