The Changing Face of Debt Collection in Nigeria: Empowering Borrowers Through Self-Service in a Digital Age.

In April 2023, Tope, a young professional in her late twenties, found herself in a challenging predicament she couldn't resolve. Her phone incessantly buzzed with calls from an unfamiliar number. Reluctantly, she answered and heard a stern voice demanding full repayment, threatening to report her to the credit bureau and flagging her BVN.

Tope had taken the loan to cover her mother's medical bills. However, unforeseen medical expenses drastically altered her financial situation, making instant full repayment nearly impossible. The pressure from the lender, combined with constant calls and messages, the looming threat of reputational damage, and a damaged credit score, compounded her stress.

Could Tope's situation have been different with a self-service debt collection approach? Could it have empowered her to regain control of her financial journey, making payments, checking balances, and tracking her progress on her terms?

Understanding the Shift Towards Self-Service Debt Collection: A Data-Driven Approach.

The financial industry is evolving rapidly, and one notable change in recent years is the rise of self-service debt collection. In this model, debtors take control of their repayments using automated online tools provided by lenders or debt collection agencies. In the past, when borrowers failed to make timely payments, lenders would typically call or send reminders.

Self-service debt collection, however, mirrors online bill payment systems. Instead of contacting borrowers with reminders, lenders provide websites or apps for customers to view balances and due dates. Borrowers can set up repayment plans and make payments without direct contact with the lender, all from their computers or smartphones.

According to a Boston Consulting Group (BCG) report, self-service channel usage increased by 20% in the early months of the COVID-19 pandemic and continued to rise at unprecedented rates. This shift has transformed borrower-lender interactions, debt recovery methods, and the overall debt collection landscape.

Surveying Borrowers: Understanding the Trend.

Following the COVID-19 pandemic, many Nigerian digital lenders experienced a sharp increase in non-performing loans. The National Bureau of Statistics reported a 24.08% inflation rate in July 2023, reducing borrowers' capacity to meet their original repayment agreements. As of April 2023, the Central Bank of Nigeria recorded non-performing loans at N1.32tn, representing 4.3% of the banking sector's total credit of N30.64tn.

We conducted surveys amongst borrowers from various lenders, of whom 60.7% were aware of self-service debt collection. 66.3% cited convenience as the most beneficial aspect, making it their preferred option.

Moreover, 52.6% appreciated the flexibility to manage payments, check balances, and track their progress. Additionally, 66.7% expressed a willingness to use a self-service platform if it helped them meet their obligations through a structured repayment plan.

One respondent, Alex, an IT professional, stated, "Being able to make payments on my schedule will make a world of difference. I will no longer worry about missing due dates."

A substantial 63.2% of respondents reported reduced stress compared to traditional collection methods involving phone calls or physical visits. Respondents frequently mentioned the high cost of living in the country as a reason for loan defaults. They valued a self-service platform that enabled them to repay their obligations with reduced stress and minimal human agent contact. The absence of constant phone calls and reminders allowed them to focus on effective repayment strategies, echoing Tope's experience.

Implications of Self-Service Debt Collection for Borrowers in Nigeria.

The shift towards self-service debt collection carries significant implications, offering borrowers a convenient path to manage their financial obligations. Beyond individual benefits, there are broader implications:

1. Empowerment and Control: Nigerian borrowers now have more control over their financial destinies. They can set repayment schedules, automate payments, and track progress, fostering a sense of empowerment and financial responsibility. 69.1% of respondents believe that self-service debt collection empowers them to have more control over their debt repayment, similar to Tope's experience.
2. Improved Credit Scores: Timely and consistent payments, facilitated by self-service options, can improve credit scores, opening doors to better borrowing opportunities.
3. Financial Education: Self-service debt collection serves as an educational tool for Nigerian borrowers. They are more likely to understand their financial obligations and make informed decisions, as shared by Betty, a civil servant using the 'Quick Bucks' self-service app.

Implications of Self-Service Debt Collection for Lenders in Nigeria.

Lenders also stand to gain from self-service debt collection:

1. Efficiency: Self-service options streamline debt collection, reducing manual interventions and associated costs. Digital platforms can automate payment reminders, significantly reducing administrative burdens.
2. Compliance: Automated processes enhance compliance, ensuring that regulations and legal requirements are met, reducing the risk of non-compliance.
3. Data Security: Digital platforms, such as Quick Bucks and BFREE self-service platforms, incorporate robust cybersecurity measures to ensure the safety, confidentiality, and security of borrowers' financial data, aligning with CBN's data security framework.

Challenges and Considerations in the Nigerian Market.

While self-service debt collection offers numerous advantages, it's important to acknowledge the challenges and considerations:

1. Digital Literacy: Not all borrowers may be comfortable navigating digital platforms. 13.6% of respondents found self-service products difficult to use. Lenders adopting this trend must provide ongoing support and education to bridge the digital divide.
2. Data Security: In a world inundated with digital data, lenders must strengthen cybersecurity measures. 28.4% of respondents expressed concerns about the confidentiality and security of their financial data, emphasizing the importance of data protection.
3. Human Interaction: Some borrowers, especially those aged 35 to 44 (23.9%), prefer human contact alongside self-service debt collection. Striking a balance between automated self-service products and human interaction is crucial.

Conclusion: Shaping the Future of Debt Collection.

Tope's journey and insights from our survey illustrate a growing trend of borrowers embracing self-service debt collection. As technology advances, this trend is set to accelerate, shaping the future of debt collection.

In this evolving financial landscape, lenders and debt collection agencies must adapt their practices to accommodate self-service debt collection. By doing so, they can empower borrowers, providing the tools to navigate financial obligations effectively and catalyze financial well-being in the digital age. The rise of self-service debt collection signifies a shift in the borrowing landscape, offering borrowers a path to financial empowerment, reduced stress, improved financial literacy, and enhanced creditworthiness. Simultaneously, lenders stand to gain efficiency, cost savings, and improved compliance.

As borrowers and financial institutions adapt to this new paradigm, the future of debt collection promises a more informed, confident, and resilient financial world, where borrowers and lenders coexist harmoniously in the digital age.