Innovation can be messy. From smartphones and social media to workplace harassment scandals, cyber security threats, and investor fraud, Silicon Valley has been at the forefront of numerous technological breakthroughs as well as legal and social issues. There’s a reason—plenty of reasons, in fact—that turtlenecked founders from Mountain View earn as many eyerolls as venture capital dollars when they announce plans to “disrupt” another industry.
With that in mind, I’m not sure if the following is good news or bad news for consumer lending organizations: Silicon Valley is seeking to revolutionize debt collection.
A recent article in Wired profiles a few of the startups leading the way. According to the story, companies such as TrueAccord and Collectly are using algorithms and data analysis in an effort to make an unpleasant lending practice friendlier, more personalized, and more effective. The result is a debt collection model that looks a lot like online advertising:
“Instead of robocalls that go unanswered, letters lost in a pile of mail, and pushy collection agents who work on commission, TrueAccord contacts people through email, text, and the occasional Facebook ad, nudging them to check their inbox for an email from TrueAccord. Customers can adjust repayment plans online, changing the amount week to week or canceling a payment with no fee.
The company uses machine learning to analyze data collected from behavior on its website and other information shared voluntarily. TrueAccord says it does not buy any personal, financial, or demographic data, including credit scores, does not use affinity data, and does not ‘creep crawl the web.’ But it does know how much a debtor owes, to whom, and how far behind the person is on the payments. Over time, the company believes, this data will help it predict preferences, like whether customers prefer text versus email, days and times to send messages, and even tone of voice, such as empathetic, friendly, or inspirational, but never aggressive.”
As with so many instances of Silicon Valley innovation, the technological advancements here are couched in a broad, idealistic vision for the future. In these companies’ eyes, they’re not just developing better software, but engaging in a form of altruism.
Some lenders remain unconvinced:
“Ira Rheingold, executive director of the National Association of Consumer Advocates, is skeptical. ‘A kinder, gentler debt collector? I’m not sure I’ve seen the beast,’ Rheingold says. No matter how you slice it, ‘they’re simply competing against other creditors to get your money quicker and faster.’
Software may improve efficiency, but it doesn’t address the underlying reason people fall behind on their bills. ‘They’re not paying their debt, because they don’t have the money,’ and that won’t change without access to more income or job opportunities, Rheingold says.”
And then there are the regulatory concerns. As I wrote at the top, innovation can be messy. Any finance company that plays fast and loose with consumer data should beware the Consumer Financial Protection Bureau.
“The plunge into finance also brings Silicon Valley, which likes to operate free of government oversight, into a highly regulated industry. That has already caused problems for some startups. In 2017, Earnest, a student loan startup, was bought by Navient, formerly part of Sallie Mae, and one of the nation’s largest student loan companies. The CFPB is suing Navient for allegedly cheating borrowers. LendUp, a subprime credit-card startup also backed by Y Combinator, paid the CFPB a $6.3 million settlement in 2016 for misleading consumers.”
Having worked with dozens of Silicon Valley folks, I’m confident that the companies trying to change debt collection genuinely believe in their aspirations. Moreover, without forward-thinking innovators, there’d be no Compli. But take it from a company that has built tech solutions for highly regulated industries: compliance needs to come first. Learn how our platform is designed to help lenders grow—while keeping them protected.