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Revolutionizing loan servicing and collections with artificial intelligence

In the fast-paced world of finance, staying ahead of the curve is crucial for success. Technology advancements have made a significant impact in loan servicing and collections over the past decade, but artificial intelligence (AI) is poised to revolutionize this industry.

McKinsey defines AI as “a machine’s ability to perform the cognitive functions we usually associate with human minds.” At Conduent, we’ve been working with AI innovations for many years and recognize the newest generation of AI as truly revolutionary — taking computer and software capabilities and business operations efficiency to extraordinary new heights.

Leaping forward with next-gen technology

Legacy environments and trailing-edge software have held back many loan servicing and collections operations and kept them mired in labor-intensive, time-consuming processes. But the new iterations of AI are poised to help lenders advance by leaps and bounds. In this blog, we'll explore the transformative power of AI in loan servicing and collections and the benefits it brings to lending institutions and their borrowers’ overall experience.

Here are six pivotal ways AI is reshaping the lending and collections ecosystem:

1. Predictive analytics for efficient risk assessment – AI algorithms excel at analyzing vast amounts of data to identify patterns and trends. In loan servicing and collections, this capability is invaluable for predicting borrower behavior. Employing predictive analytics, financial institutions can more accurately assess the risk associated with individual borrowers. This not only streamlines the decision-making process but also helps proactively identify potential defaults and implement preventive measures.

2. Significantly reduce operating costs – AI can significantly advance cost savings potential by accelerating processing speeds and enabling agents to gain much faster actionable insights into borrower behavior, improve accuracy for faster results and supercharge overall productivity.

3. Automated communication and personalized interactions – AI-powered chatbots and virtual assistants are changing the way financial institutions interact with borrowers. These automated systems can handle routine communication tasks such as sending reminders, collecting information and addressing common inquiries. AI also simplifies personalization of communication, tailoring messages and outreach strategies based on individual borrower profiles. This not only improves efficiency but also enhances the overall customer experience.

4. Behavioral analysis for early default aversion – AI algorithms are adept at analyzing borrower behavior to detect signs of financial distress early on. By monitoring spending patterns, payment history and other relevant data points, AI systems can identify potential red flags and/or signs of borrowers struggling to meet their obligations. Early detection fosters prompt intervention, where lenders can offer assistance or restructuring options before the situation escalates.

5. Dynamic payment plans with machine learning – Traditional fixed repayment schedules may not always align with a borrower's financial situation. Machine learning (ML) is a sub-set of AI, applying algorithms that can play a crucial role in developing dynamic payment plans. ML models can analyze historical data and borrower behavior to create personalized and flexible payment plans. This adaptability ensures borrowers are more likely to meet their obligations, reducing the risk of defaults.

6. Compliance and regulatory assistance – Ensuring compliance with constantly evolving financial regulations is a complex task. There are varying views regarding whether AI systems can reliably and accurately assist financial institutions with regulatory compliance and mitigating the risk of non-compliance. While there is potential for AI to save significant time and resources in this area, it is wise to proceed with caution as AI can also have unintended bias or misflag areas, creating unexpected and avoidable issues.

As in so many other business realms, AI is emerging as a game-changing technology poised to dramatically reshape loan servicing and collections.

Financial institutions that prudently embrace AI technologies in their loan servicing and collections processes are optimizing their operations and enhancing the borrower experience like never before — driving unprecedented efficiency, accuracy, productivity, customization and cost savings. As we continue to witness and apply advancements in AI, the positive transformations in loan servicing and collections environment are just getting started. The synergy between technology and business processes AI is igniting is creating a more sustainable, high-efficiency and resilient operations ecosystem for lenders to excel into the future.

At Conduent, we’ve been at the forefront of consumer finance innovations for more than 30 years and are excited about the transformative potential of AI on this industry.

Learn more about key actions lenders can take to stay strong and forge a successful future in our eBook: Recovery in Action – Collections solutions lenders need right now.

About the Author

Jeff Higdon is senior director of Consumer Finance Solutions at Conduent. He provides strategic leadership, oversight and direction for Conduent’s consumer finance business — including the company’s on-shore, near-shore and offshore service centers, software as a service (SaaS) and business process outsourcing solutions, Jeff has more than 30 years of senior-level leadership experience in process and technology outsourcing and consulting in the financial services sector and has been pivotal in shaping Conduent’s Loan Manager platform.

Profile Photo of Jeff Higdon