Consumers are changing. Gen Z's share of debt is growing and their engagement preferences matter more and more. Your debt collection strategy needs to follow suit. In this ranging interview with Justin Miller, President of Vital Solutions, you'll learn:

  • Why you need to - and how to - tailor your collection strategy to unique consumers, Gen Z borrowers, and digital natives;
  • Which data points your collection vendors need to build effective strategies;
  • What strong creditor-agency partnerships should look like; an
  • How the economy might affect your collection strategy and how to prepare.

Gen Z and what "frictionless" engagement really means

Q: Gen Z makes up 20% of the US population and they are digital natives with a different approach to buying than prior generations. How should financial services companies change their approach to collections when it comes to Gen Z?

A: The most obvious change is how you communicate. The easiest place to start is with understanding how the customer was acquired.

What channels were used when the account was active? If they’re path was 100% digital, then it stands to reason that this consumer will expect to be able to communicate through digital channels. Beyond the communication channels, I would look at the frequency of communication expectations, not just in relation to Reg F, but asking questions like:

  • What are the consumer’s expectations?
  • How can we tailor your communication strategy down to the individual consumer, so that the frequency of communication attempts (regardless of channel), are appropriate and drive the correct result?

Finally, we spend a lot of time discussing what “self-serve” really means. I think initially, for most of us, this meant simply having a payment portal, but it needs to be so much more. Essentially it needs to be a “one-stop-shop” for a consumer to see what’s happening with their account, obtain documents, request documents, lodge a complaint or dispute, etc. Most consumers are used to having an app on their phone that serves as a gateway into their account when it’s active. Our consumer portal needs to mirror this.

I hate over-generalizing, but our data also tells us that Gen Z consumers are highly focused on “trust.” They are going through some sort of financial difficulty, which strains and erodes their trust. We need to ask: how do we regain that trust? All indications are that if you focus on this, and get it right, Gen Z consumers are more likely to engage with you, and they’re more likely to resolve their account. Speed and “ease of use” are both important, but you have to start with convincing them you are trustworthy.

Q: How are your clients who are focused on lending to Gen Z and other digital natives expecting you to adjust your strategy to collect from them?

A: As with all digital natives, top-of-mind for these clients is the digital communication channels we can offer. If we cannot align our communication channels to what they offer, then it stands to reason there will be consumer loss / detriment.

The next change in strategy is this concept of “frictionless engagement.” Now, for some clients (and their customers) that translates into “self-serve,” but not always. And I think this is where the biggest paradigm shift is occurring, because this means something different for each customer. What our clients really want is a strategy that can be tailor-made to the customer. This is really where machine learning and scoring come into play. Asking questions like:

  • How do I get to the place where my contact strategies are tailored to each individual consumer?
  • How do I know whether the next “nudge” (outbound contact attempt) is necessary?
  • How do I know “nudging” via this channel or that channel is going to yield an appropriate response?

Some of this simply comes down to trial and error and capturing how consumer behavior changes with each attempt, and then thoughtfully crafting the appropriate strategy that maximizes value for the client. However, to take this where it needs to go, we are entering an age where we can create true partnerships with our clients. As an example, I want to gather as much data from our clients as possible in regards to consumer behavior prior to collections. This upstream behavior is great at predicting downstream behavior, and as we engage with the client’s customers, this approach, of sharing data back and forth, creates a stronger value proposition for both of us.

Expect volatility, plan for stronger partnerships

Q: We’ve been in a benign credit environment for about 12 years now, but it seems that’s about to change. How would you describe the current economy, and how are you advising your clients to strategize accordingly?

A: Forecasting how the economy is going to perform over the next six, twelve, or eighteen months is really difficult. Factually, the Federal Reserve has said that 36% of Americans do not have enough in savings to cover a $400 emergency. We also know factually that charge-offs have been at historic lows. If you think about how well the economy has performed over the last few years,it can be really telling. What it tells me is that at least a third of Americans, regardless of reason, have not been able to save money during this time, but have been able to pay down debt better than they have in the past. But what it also tells me is that any shift in the market dynamics that makes household goods more expensive, raises interest rates, places headwinds in the jobs market, or any combination of the above, will cause trouble for consumers.


Gone are the days of simply throwing something back and forth over a wall. The wall between creditor clients and third party agencies is gone, and as times undoubtedly get tougher, I expect the paths between us to grow stronger and stronger.

So, a period of inflation could absolutely lead to a period of recession, and that could lead to higher charge-off rates for our clients. Our general belief is that we should expect lots of volatility in the short term, but we don’t define “short term.”

Instead, our focus is on preparing for all manner of scenarios. We are very fortunate to work with some clients who are very transparent with how their portfolios have been performing over the last couple of years, and what, if anything, has been shifting. In many cases, we have been able to simply work on how we communicate with them (the client), and how we get the “hand-off” between us right. This cannot be discounted; getting that handoff right (and continually getting it “better”) can make a difference on how a consumer responds, and that response can have a material impact on our clients’ results. I alluded to this before, but again, this is another paradigm shift where we see a stronger sense of partnership with our clients, and it highlights how important our ability to align with them has become. Gone are the days of simply throwing something back and forth over a wall. The wall between creditor clients and third party agencies is gone, and as times undoubtedly get tougher, I expect the paths between us to grow stronger and stronger.

Q: How would you advise fintechs, especially those that are newer and not accustomed to focusing on collections & recovery, to approach a potential economic downturn?

A: For many of our fintech clients, this will be unchartered territory. They have been on steep growth trajectories over the past couple of years, and, especially for those that are start-ups, have been hyper-focused on customer acquisition. They all know some sort of pull back is coming, and so our job is mostly to be ready: be ready to handle whatever holes they need us to fill, whether in collections, customer service, or technology.

We want them to know that these are not unchartered waters for us, and we are absolutely prepared to help them out. Tactically speaking, the other message is that our partnership is exactly that. As they pull whatever levers they have from an underwriting perspective, we need to be laser-focused on delivering maximum value, so they can be better informed on which levers they need to keep pulling.

How BNPL debt is different and how it isn't

Q: Fintechs like BNPL providers are different in a lot of ways from traditional credit card companies, and their customer base reflects that. Do you think BNPL debt needs to be collected differently than traditional credit card debt? If so, how?

A: We approach our strategy building by breaking down the collections process into some basic components, namely, reaching out to and engaging with consumers, and working with those consumers to resolve their debt. Obviously, there are many permutations and branches from those fundamental tasks, but at their core, each debt type follows very similar patterns, within the debt type.

Out of the gate, one fundamental difference with BNPL consumers is the customer acquisition and underwriting process. There is a certain amount of insight “lost” when using non-traditional data to underwrite, and perhaps the biggest piece of the puzzle is answering the question: “how much more non-traditional debt does this consumer have?”

The top of our list when working with any BNPL provider is understanding where this consumer fell in their underwriting score bands, so we can try to gauge how distressed they may be. There’s a couple of reasons why this matters. First and foremost, the more distressed the consumer, the less likely they are to engage. Secondly, the more distressed the consumer, the more difficult it will be to simply locate them. We have found, at least in the subprime and deep subprime space, consumers change their phone number once every six to eight weeks. This is predominantly driven by their inability to secure a long term (traditional) phone contract with a mainstream provider; they simply do not qualify. It is imperative that we have a data source (preferably multiple data sources), that helps us figure out the phone carrier for their mobile numbers.

The next difference is understanding the nature of the purchase. Within the BNPL space there are consumers that clearly go into the purchase expecting to use credit (though they may not know exactly what type), and then there are consumers who may have made an “impulse credit” decision. For example, if you look at an online shopping customer who is making a large / expensive purchase, it stands to reason that they went into the transaction expecting to use some form of credit to make the purchase. They landed on a BNPL option, and off they went.

The reality is the consumer may not have had a full understanding of how BNPL worked, or how it was different from a traditional credit option. You now also see BNPL options at self-pay kiosks for all kinds of goods. For example, as I travel, I see more and more “self-pay” kiosks at the airport terminals, and almost all of them offer a point-of-sale BNPL option simply by scanning a QR code. Did the person who is buying a bottle of water, and a bag of chips walk up to the kiosk expecting to use BNPL? Probably not. These consumers are probably even less aware of what they are signing up for, and what it means.

The point is, when engaging, we have to take a very educational approach. This is even more true for first payment (or “early payment”) defaults. Oftentimes the consumer doesn’t really understand what they signed up for, and our agents have to take the time to explain / educate the consumer, particularly on the benefits. In that sense, we become an extension of the customer acquisition process. The stronger our partnership with the BNPL client, the better the results.

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