AI-Powered Debt Collection: A $15 Billion Opportunity in India

Debt collection just got easier, and AI-D may have opened a $15 billion opportunity

AI and digital are revolutionising nearly every aspect of our lives. One area experiencing a significant, though underreported, transformation is debt collection. Traditional methods of collecting debts are becoming increasingly ineffective, costly and fraught with compliance risks. This discontinuity opens up new opportunities for fintechs and incumbents as they leverage AI and digital-driven collections. AI-D are expected to reduce costs by

Debt collection just got easier, and AI-D may have opened a $15 billion opportunity

AI and digital are revolutionising nearly every aspect of our lives. One area experiencing a significant, though underreported, transformation is debt collection. Traditional methods of collecting debts are becoming increasingly ineffective, costly and fraught with compliance risks. This discontinuity opens up new opportunities for fintechs and incumbents as they leverage AI and digital-driven collections. AI-D are expected to reduce costs by 30-40%. Consider this: India's financial institutions spend a staggering ₹50k cr ($6 bn) on collections. Include latent demand in select segments (like PSBs) and projected increase on account of robust credit growth expectations for FY25, and we are already looking at a ₹70-75k cr market. Over the next five years, this figure is expected to rise to ₹1.25 lakh cr ($15 bn). The penetration of digitally-enabled collections has doubled from 10% to 20% in recent years, and is projected to reach about 40% by 2028. AI-D is catalysing a fundamental shift towards a more holistic collections approach, deftly balancing three vectors: efficiency, effectiveness (cost) and ethics (compliance). This helps break the siloed verticals (digital, tele- calling, field) with models that drive orchestration via next-best action, thereby non-linearly solving for these vectors. As a result, digital collections-focused fintechs, equipped with full- stack platforms and AI capabilities, have rapidly transitioned from being novelties to necessities. Traditional field collections, once the industry backbone, are expected to decline from 40-45% in 2023 to less than 25% by 2028. For lenders, benefits are clear: lower costs, scalable models and controlled roll-forward rates. AI-D capabilities have helped lenders reduce credit losses by up to 50% and have significantly improved recoveries (20-30% uplift), even in challenging delinquency segments. Customers also stand to gain. The era of relentless calls and field visits could soon be over, replaced by solutions that restore financial health and improve credit profiles. Regulators, focused on fostering a healthier credit ecosystem, will see fewer customer grievances and a more compliant industry. Here are 6 key drivers of digital collections: This is a clear area where fintechs and incumbents can be 'better together' with the right collaboration model. Fintechs by virtue of serving multiple players in the industry can ride the experience curve in an accelerated manner. Some high-quality players, with their base ML models and utility journeys, are becoming very potent very quickly. Also, the default trust-and-security layer that enforces standard regulatory compliances is getting refined quickly and becoming more robust. This helps any incumbent to come up the curve on AI-D and compliance domains quickly to a high standard. Incumbents can build on this by leveraging their internal data to build custom-trained models and journey variants to tap into even higher value extraction. Collection agencies also benefit along the way. The field agents' roles become more well-defined and streamlined by adopting AI-D. This isn't just a trend but an inevitable evolution in the financial landscape, a $15 bn opportunity waiting to take wing.