Try as we might to change customer opinion, debt collections has struggled to shake its bad reputation in both established and emerging markets. Regionally, this could be down to a multitude of factors; from cultural differences and complicated local court systems to overly aggressive collections practices. These local debt collections problems have a knock-on effect on a regional scale. There are also various shared problems faced by debt collections agencies and banks across the globe.
There are forces at work aiming to reshape the banking sector, and retail banks need to choose whether they want to brace for impact or lead the charge. With 2018 winding to a close and retail banking in a state of perpetual change, everyone's eyes are currently on 2019.
Between 2015 and 2016, World Bank figures reveal that the average proportion of all loans that are non-performing (NPLs) rose over half a percent from 6.99% to 7.07%.
According to Gartner,the cost of servicing a delinquent loan is now 15 times higher than the cost of servicing a performing loan.
Pair this with a trend towards cutting operational costs, and you’re left with a situation where banks are being asked to collect more with fewer resources.
Whilst APAC presents a potentially lucrative market for businesses and investors, when it comes to debt collection, unfamiliarity with local legal systems and taxation – not to mention some antiquated collection practices – has lead to some serious challenges. As a result, debt collection in the region has become notoriously tough.
It’s difficult to talk about the APAC region as a whole - it includes industrial giants like China, global financial centres like Hong Kong, and burdened economies struggling to handle their debt-to-GDP ratio. That said: three specific factors recur as concerns for debt collectors across the region:
Many Asia-Pacific countries are notorious for the complexity of their debt collections operations, with a report from credit insurance company Euler Hermes ranking the vast majority of APAC region countries as ‘severely’ complicated.
Digital transformation is big news in the Asia-Pacific region (APAC). In 2017, around 6% of the region’s collective GDP was derived from digital products and services; Techwire Asia predicts this will increase ten times over by 2021, with a predicted economic contribution of over $1 trillion.
Beyond raw economic growth, digital transformation brings operational changes to every industry. An IDC survey, sponsored by Microsoft, predicts that 85% of jobs in APAC will change significantly: business leaders are already looking to increase agility to meet the new challenges in cybersecurity, data processing capability and integrating technologies like AI and the IoT.
PwC predicts that by 2020, consumer intelligence will be the most important predictor of revenue growth, the public cloud will be the most dominant infrastructure model, and - crucially - that Asia will emerge as a key centre of technology-driven innovation.
Although the Asia-Pacific (APAC) region is currently under a severe amount of debt pressure, the rate of regional household and business borrowing has actually slowed in recent years. That being said, debt levels remain high overall. Across APAC, a 5% increase in the household debt to GDP ratio over a three-year period is expected to lead to a 1.25% drop in GDP growth in another three years.
In a world where you can access mobile banking in the blink of an eye, the technology used to identify customers still falls far behind.