Digital payments' growth and how it affects loan collection
The primary lockdown caused a loss of work and revenue due to social distancing. two factors drove a dramatic decline in demand for goods and services by customers within the market and ultimately led to the collapse of economic activities. The era of 2020 showed the imminence of digital changes which led to a collapse in economic activities. There was a drastic change in independent service sectors whether you talk about hospitality, tours and travels, healthcare, retail, banks, hotels, education, health, IT, media, and other industries - impacting the workforce and disrupting the overall economy.
More specifically, if we look at banking and other financial sectors, the majority of banks have been providing services digitally for a very long time now. Still, the general public started utilizing it to its full potential only after the threat of the virus contagion. This led to the growth of Digital payment.
A report by BCG and PhonePe Plus says that the industry for digital payments in India is predicted to more than triple from its current value of US$3 trillion to US$10 trillion by 2026. By 2026, digital payments (non-cash) will account for 2 out of 3 payment transactions as a result
of this exceptional development.
Why Digital Payment?
Whether they are major corporations or small businesses, digital payments have a favorable impact on all businesses.
It is a practical, rapid, and safe method of receiving payments that save costs for the enterprise and boost earnings.
More clients: Credit/debit cards are increasingly the norm for online shoppers, who also choose to use mobile wallets to complete their transactions.
Online presence: Online presence is increasingly important for businesses looking to grow their customer base and revenue. Since customer experience is a key component of online enterprises, companies are attempting to concentrate on the best way to accept payments online in addition to creating reliable and active websites and supply chains.
Mobile payments: In India, where there are more than a billion cell phones and 330 million internet users, mobile-based transactions are expected to increase by 50% in the upcoming year.
Customer satisfaction: The customer will be happier if the checkout process is as seamless as possible. Online payment collection is quicker, safer, and more secure in addition to being seamless.
Save time and energy: Working with e-commerce and automating some procedures, such as processing bills, saves time and work. Online payment services increase productivity while reducing manual disruption.
Impact of Digital payment on the economy
As of 2021, there were almost 1 billion digital cards and over 2 billion prepaid payment instruments, including digital wallets, online banking accounts, and other digital payment methods, in India alone (MoneyControl). In just one month in October 2021, transactions over India's Unified Payment Interface (UPI) totaled Rs 421 crore.
The adoption of cashless transactions was boosted by the COVID pandemic. Since financial transactions are a part of debt collection, it is clear that digitization is affecting banks and debt collection companies. Digital banking is becoming the standard.
Digital payment is more effective than traditional payment methods:
Digital Payments Are Fast: Using digital payment is preferable to using cash. Simply put, it is quicker. Customers merely need to grab a card and swipe or tap it when a shop accepts digital payments. They won't be holding up any lines if they pay online because they can enter their account information at home on their schedule. Additionally, the company receives the payments right away without having to worry about making trips to the bank or waiting days to find out if a check is approved. In essence, one of the benefits of digital payment over cash is that it frees up time and streamlines cash flow for companies across all industries.
Paying Digitally Is Convenient for Consumers: When customers are prepared to buy, they can do it right away, without first needing to visit a bank or go home to collect cash or a check. Because there's a danger a consumer won't come back to finish the deal if they have to leave to collect cash, this usually leads to more sales for businesses. To increase sales at your company, it is crucial to accept and even promote digital payments.
Digital Payments Are Typically More Secure: The irony of the situation is that digital payments have never been this safe. Passwords, tokenization, strong customer authentication, digital ID, and biometrics are some of the technologies that can reduce the danger of sensitive data being intercepted and used fraudulently. These complementing methods preserve the speed and convenience that customers love about online shopping while also thwarting fraud and ensuring secure payments. Thus, by enabling lightning-fast payments, issuers and merchants will be encouraged to engage in these innovative methods, which will reduce fraud and grow the industry.
The Problems With Debt Recovery
The number of debtors and delinquents has increased as a result of the pandemic and rising economic problems. Because of a staffing shortage, banks and lenders are unable to use manual processes to accomplish their objectives.
Digitalization is lacking on the front end as well. For consumer engagement, lenders continue to rely on antiquated channels like letters rather than electronic ones.
Government regulations are tightening, and it's getting harder to collect loans in person and with antiquated techniques like phone calls. Federal regulations forbid phoning a consumer before and after a specific hour of the day. Threats and other violent behavior are prohibited by law.
When it comes to processes for collecting debt, the majority of banks and lenders do not use digital solutions. To decrease the likelihood of defaulters well in advance, debt collection operations including user profiling, risk analysis, tracking loan delinquents, etc., can be digitalized.
How digital debt collection improves debt management?
Digitizing debt collection leads to improved communication between lenders and debtors, which enhances the attempt to collect the debt. Lenders must adapt their collection procedures in light of the consumers' increased use of information and communications technologies.
Digital debt collection solution helps in :
Reducing customer worry by giving borrowers more privacy and discretion over when, how often, and how long they communicate
Due to the flexibility of payment methods and improved contact points through digital communication, recovery rates have increased.
A decrease in call volume frees up agents to concentrate on high-risk cases
Standardized procedures that guarantee adherence to rules
Banks are required to develop digital solutions in three areas:
Agility is enabled by resilience:
Banks will need to increase testing for scenarios involving third parties, technology, operations, and laws as well as develop new performance indicators to increase enterprise strength. The pandemic has demonstrated that not all hazards can be predicted, but that building resilience entails creating a structure that can respond to them when they arise.
Cost control as a cornerstone of profitability:
A flexible cost base is necessary for an agile organization. Banks can discover tactical ways to strategically align resources to optimize potential if they view the crisis as a chance for comprehensive cost reduction across three levers: operational, structural, and strategic.
Internal and external data provide greater customer centricity:
To assist clients in navigating the crisis and its aftermath, banks will need to modify their business models if they want to build long-term value. This calls for financial institutions to embrace the possibilities of platforms, become more aware of the shifting demands of corporate customers, and think about how to use data to hyper-personalize the value they provide to retail, wealth, and business customers.
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