Published on May 18th, 2017

Digital debt collection – effects of a data-driven revolution

Who has not faced this situation before: You forgot to pay a bill, go on vacation and return to your mailbox which is full of dunning letters. Apart from the default charges and the threat of lawsuits, the involuntary debtor might get the uncomfortable feeling of being prejudged. The relationship with the business that directed the debt collector is often irretrievably destroyed.

This situation is more of a loss than a benefit for the debt collectors’ clients. Sadly, this is not a rare phenomenon but rather daily routine for the German debt collection industry.

Traditional branch without a digital approach

The traditional character of the branch is probably one of the reasons for this common practice. More than 560 debt collection businesses are registered to the Bundesverband der Deutschen Inkasso Unternehmen (BDIU) with, on average, 11-50 employees. The industry is pretty busy: By the end of 2015, it managed a collected total claim amount of about €60bn. [1] Three quarters of the businesses have been active in the market for more than 25 years whereas the number of new entrees is rather small. [2] Most of the businesses profit from their long years of expertise but, due to outdated processes and little innovation, face to lose the connection to the digital routine in which the debtors are involved.

Simultaneously, more and more people spend time online and that is where the debts occur. According to a branch analysis, 53% of the clients that are approached by the collection businesses are online shoppers. [3] Hence, the habit of online shopping has become quite profitable for the debt collection industry.

The 1.000 most profitable online shops in Germany made a revenue of €35.5bn in 2015, which is a rise of 9% compared to 2014. Yet, there is no end in sight to the online boom: The turnover in the whole e-commerce sector is predicted to rise 7.8% annually until 2021. [4]

Still, the debt collection industry is lagging behind when compared to the digital shopping world. Clients who order online are used to easy services as, for instance, PayPal for paying their bills with nothing more than a few clicks. According to the study of IKU (Inkasso-Unternehmen), 80% of the collection companies do not reach out to their customers via digital channels. Instead, 58% go for letters and fax when it comes to the initial contact and only 7% use emails. [5]

Digitization is still at the beginning

There are startups, however, that realized the need for digitization in the industry. One of them is the debt collection business PAIR Finance which was founded in early 2016. Their priority is to achieve an easy settlement before a judicial procedure even starts. Through a respectful contact with the debtor during the entire process, PAIR Finance increases the probability that the customer relationship is not permanently damaged and the creditor subsequently uses the services of the company again.

How is this achieved?

The creditor has to be approached on channels that he is familiar with: via his smartphone or the internet in general. PAIR is addressing the debtor via email, SMS or messenger services. Approaching the debtors via digital channels creates the opportunity to combine payment requests with links that can immediately be used by the creditors to settle their debts within minutes.

This solution bears two remarkable aspects: First, the debtor does not experience a media disruption, meaning he does not have to change from a digital format to an analogue one but can easily finish the process online within a few clicks.

Second, the creditor can be reached even faster through digital channels compared to the traditional ones. With a postal contact, the client will get notified in one or two days at best, whereas the digital process only takes ten minutes on average since smartphone users generally peek up to 150 times per day on their phone. Furthermore, PAIR Finance does not immediately cooperate with lawyers in order to avoid the customer feeling threatened.

Digital channels are only one component of complete automation

The use of digital channels is one step into the right direction to digitize the debt collection industry. Another one is the data-driven approach of customers. The technology for this approach was developed by PAIR Finance and is based on artificial intelligence.

A self-learning algorithm uses a variety of data that is collected continuously before and during the interaction with the debtor. Using insights from the fields of behavioral research and psychology, the collected data is evaluated. Afterwards, the debtor is categorized and addressed individually. In addition to the content and tonality of the address, the optimal channel, time and frequency are determined in order to reach the debtor quickly and to convince him to pay.

The results of this new debt collection approach are visible: The debtors get in contact with the debt collection businesses quickly and, on average, clear their debt within a few days. The automatic processing of the debt collection management saves time and effort during the process, so that workflows can be carried out faster and with fewer employees. The PAIR team, with 16 employees, is able to collect debts for around 100 companies.

Digitization can also be used to handle debt collection claims where manual processes have not paid off. Here is an example: PAIR Finance can accept low claim amounts of less than 10 euros. So far, this service is being provided by only 1% [6] of all debt collection companies, with average amount of a claim being €683. [7]

The advantages of the digital are diverse

All in all, the digitization of collection processes significantly increases the success rate in debt settlement and positively supports the return of the customer to the client base of a company, because he does not feel threatened by debt collectors. Moreover, the digital processes contribute to personnel and time savings, as well as enable individual service offerings, such as, small volume orders.

Although PAIR Finance may be pioneering the digital debt collection approach, the need for digitization has been realized within the industry. Slowly, a cultural change can be observed in the traditional debt collection sector. Kay Uwe Berg, CEO of the BDIU, is also convinced that the industry will change: “There will be faster forms of communication, for example by paying reminders by smartphone. Where the journey goes exactly has yet to be discovered.” [8]

It is a long journey, but the first step has already been taken.


[1] Branchenstudie Inkasso 2016, Bülow & Consorten

[2] IKU Branchenstudie 2016, p. 12

[3] IKU Branchenstudie 2016, p. 47

[4] EHI Retail Institute, statista, E-Commerce-Markt Deutschland 2016, 12

[5] IKU Branchenstudie 2016, 50.

[6] Inkassowirtschaft, Volume 21, Gerechtigkeit für Gläubiger, 4f


[8] Print&More, Volume 4/2016,, 74.