Adam Smith, the pioneer of political economy and arguably the first modern economist, claimed that a certain level of trust is vital for any transaction to take place. If we can’t trust the butcher to give us quality meat, we have to inspect cows and abattoirs and slabs every time we buy any - which is ridiculous.
Without trust, we don’t have a viable economy. We need to trust banks to hold our savings responsibly - and banks need to trust us to repay what we borrow.
Debtors, creditors and good faith relationships
The relationship between debtor and creditor is a sensitive one, and it’s important to approach it from a perspective of honesty and trust.
Collectors need honesty from debtors. Is the debtor being truthful about when they plan to repay, and the reasons why they’re delaying payments?
Collectors also need to cultivate empathy. They need to understand the reasons why someone is falling behind in payments and work with the debtor to overcome those reasons.
This creates an ethos of trust, in which debtors know the collector is not just after their money, but wants to help them make the next payment in a way that aligns with the debtor’s situation.
Collectors need tools to assess the honesty of what is being said by the debtor – which can include social media analytics, voice/speech analysis in real time, and access to full financial records. Debtors need payment tools that work on the basis that they are trusted to pay what they can when they can, instead of repeated and inflexible demands on which they can’t help but default.
As a general principle, debt collection should not work on a premise of suspicion or distrust, but rather be built on an assumption of good faith by both parties. These assumptions are that debtors want to repay and that collectors are there to make that happen – not merely to hit their targets.
Solutions that safeguard trust
A functional debt recovery system needs to create, develop and protect trust. This means clear instructions, clear rules and regulations, and fair play across the financial sector as a whole.
Trust is a psychological state, predicated on a sense of personal vulnerability which is bound to exist in a situation where one party owes debts to another, and where the legal framework operates in favour of the indebted.
A strict by-the-book approach to debt recovery will not foster the emotional security that’s needed to manage that vulnerability and allow trust to develop. In any situation where one party controls or limits the options available to another, trust suffers.
In any situation where one party controls or limits the options available to another, trust suffers.
Trust is fostered on many levels. Some faces are deemed more trustworthy than others - high inner eyebrows, pronounced cheekbones and a wide chin are apparently the most trustworthy features. Voice is a factor too, with low-pitched male voices and female voices which pitch lower at the end of words deemed the most trustworthy. What’s more, trustworthy features can be computer-generated - if you’re going to put a persona on your automated service, choose or create one with the right face and voice.
This is important because the platform itself can also foster trust. Uber and Airbnb demonstrate this. Getting into a complete stranger’s car and going to a complete stranger’s house to stay the night feels incredibly dangerous - until they’re integrated with an app which screens, rates and reviews the other parties involved.
Both platforms safeguard trust by using objective criteria to make suggestions and structure offers. In debt collection, a platform might automate collection campaigns and suggest resolutions for each case of delinquency, based on objective criteria such as income and employment status. These suggestions, based as they are on the customer’s circumstances, go directly to the customer, proving that the creditor trusts the customer to repay their debt in good time.
An automated system can even help to avoid delinquency in the first place. A bank which detects and highlights potential credit risks before they arise and brings this to the attention of the customer will be more trusted than a bank which fails to take care of its customers’ interests.
This is the note which all debt recovery systems need to strike. Banks and their partners need to think about debt recovery solutions with the customer first and foremost in their minds. After all, phone lines and repayment apps are ultimately connecting human beings, who once decided to trust each other with money lent to be repaid.
Picture credit: (CC) Wikimedia Commons