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The Evolution of Debt Collection: From Manual Processes to Automation

Oct 22, 2024

3 min read

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Introduction: A Journey through Change


Debt collection has undergone a significant transformation. What started as a manual, time-consuming process has now become increasingly automated and data-driven. As P2P lending and BNPL (Buy Now Pay Later) services grow in Indonesia, businesses need to rethink how they manage collections to meet new challenges.


In July 2024, BNPL debt reached IDR 25.82 trillion (~USD 1.6 billion), while online loans (pinjol) surged to IDR 64.56 trillion (~USD 4 billion)​. With rising consumer debt and increasing regulatory oversight, financial institutions are now shifting towards automated solutions to improve recovery rates and manage risks effectively.


Phase 1: The Era of Manual Processes

Traditionally, debt collection relied heavily on manual efforts—officers called borrowers, mailed overdue notices, and visited homes in person. However, this approach had limitations:

  • High operational costs: Handling thousands of accounts manually required large teams.

  • Inconsistent borrower experiences: Follow-ups varied from officer to officer.

  • Limited scalability: As portfolios grew, it became harder to manage all accounts effectively.


One of our clients, a rural bank (BPR), struggled with this outdated model. The same officers handled both loan disbursement and collection, juggling these roles throughout the month. At the start of the month, they focused on issuing new loans, but as the month ended, they switched to collecting payments. This overlap created delays in the collection process, disrupting the bank’s cash flow and operational efficiency.


Phase 2: The Rise of Digital Credit Platforms

With the rise of BNPL services and P2P lending, accessing loans has become faster and easier, especially for millennials and Gen Z consumers. These platforms cater to both urgent financial needs and lifestyle purchases, making credit more accessible. However, this shift has also led to higher debt levels, requiring smarter ways to manage repayments.

The non-performing loan (NPL) rate for online loans stood at 2.95% in early 2024​. As the fintech ecosystem grows, lenders face increasing pressure to balance convenience with responsible lending. Traditional methods are no longer sufficient to manage the growing complexity and volume of debt portfolios.


Phase 3: Automation and Data-Driven Collections Take Center Stage

This is where automation steps in to address the shortcomings of manual processes. By automating tasks such as sending reminders and following up with borrowers, financial institutions can:

  • Cut costs: Automation reduces the need for large collection teams.

  • Boost contact rates: Multi-channel outreach—via WhatsApp, SMS, email—ensures borrowers are reached on their preferred platforms.

  • Improve scalability: Institutions can manage larger portfolios without compromising efficiency.


Predictive analytics tools like Lunash’s PredicAI help lenders segment borrowers and forecast repayment behaviors, enabling more targeted and proactive interventions. With Engage360, institutions can automate communication across channels, ensuring seamless borrower engagement. This shift from reactive to proactive debt recovery strategies is a game-changer, particularly for fragmented markets where borrowers engage differently across platforms.



Phase 4: A Glimpse into the Future of Debt Recovery

Looking ahead, the future of debt recovery lies in real-time engagement and dynamic repayment solutions. Some trends that are reshaping the industry include:

  • Dynamic repayment plans: These adapt to borrowers' financial situations in real-time, offering more flexible options.

  • AI-powered chatbots: Automated bots help borrowers with inquiries, payments, and scheduling.

  • Real-time data insights: Predictive analytics enable institutions to continuously optimize their collection strategies and reduce default risks.

With regulatory bodies like OJK tightening compliance, financial institutions need to ensure transparency and accountability throughout the debt recovery process. Automation not only streamlines operations but also allows for more empathetic interactions with borrowers—fostering better relationships.


Conclusion: Navigating the Future with Lunash

As BNPL and P2P lending grow, institutions must adopt automated and data-driven debt recovery solutions to stay ahead. Lunash’s tools—PredicAI and Engage360—empower institutions to streamline operations, engage borrowers more effectively, and reduce costs.

The experience of our BPR client highlights the value of separating loan disbursement from collection tasks through automation. By reducing bottlenecks and increasing efficiency, they can now improve both loan disbursement and recovery outcomes—ensuring sustainable growth and smoother operations.

At Lunash, we believe that debt recovery isn’t just about collecting payments; it’s about doing so with empathy, efficiency, and transparency. With the right tools and strategies, businesses can turn challenges into opportunities for growth.




External Sources for Further Reading

Oct 22, 2024

3 min read

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