Rising delinquency rates, shifting consumer preferences, and the integration of AI technology are reshaping the accounts receivable management industry.
08/15/2023 11:15 A.M.
3 minute read
The second quarter of 2023 saw a remarkable uptick in mergers and acquisitions (M&A) activity within the accounts receivable receivables management (ARM) industry, according to a recent report from Corporate Advisory Solutions (CAS).
This surge, both in deal volume and count, comes as a glimmer of hope after a somewhat underwhelming first quarter for agency owners, according to the report. However, the escalating delinquency rates for credit card payments have cast a shadow over the industry’s prospects, signaling an impending inflection point that demands attention.
A recent report highlighted by PYMNTS revealed a surprising twist: delinquency rates for credit card payments have not only failed to decline as predicted, but they have surpassed pre-pandemic levels for major players such as Capital One, Discover and Bread Financial. This unforeseen trend has prompted analysts to abandon the term “normalization” when referring to decreased delinquencies post-Q1. Instead, experts like Bill Carcache from Wolfe Research anticipate further delinquency rate increases in the coming months, coinciding with a potential weakening of consumer spending due to dwindling savings.
Fitch Ratings echoes these concerns, projecting a decline in consumer savings despite households holding $1.7 trillion in excess savings. This trend is notably skewed toward higher-income households, leaving the bulk of consumers vulnerable. The imminent resumption of student loan payments later this year is anticipated to exert substantial economic implications on both the broader economy and millions of American households, potentially triggering a slowdown in economic activity.
Additionally, Moody’s Analytics estimates that the resumption of student loan payments could withdraw around $70 billion annually from the economy, resulting in a reduction of about 0.4% in real personal consumption expenditures for 2023. This projection has been influenced by the U.S. Supreme Court’s rejection of the Biden administration’s student loan forgiveness plan. Amid these dynamics, liquidation rates in the ARM industry are expected to be impacted, sparking curiosity about how student loans will fare in the hierarchy of bills to pay.
Another noteworthy facet of the debt landscape is the alarming surge in auto loan delinquencies. The first quarter of 2023 witnessed auto loan delinquency rates surpassing levels seen during the Great Recession, predominantly affecting the subprime tier. Independent lenders specializing in subprime loans for used-vehicle purchases have borne the brunt of this increase, exacerbated by factors like inflation and high interest rates, according to the CAS report.
Communications & AI
The shift in communication methods also marks a significant turn for the ARM industry. Changes in text message carrier policies, such as the requirement for registration of 10-digit telephone numbers, are poised to impact the industry’s tools and communication strategies. As carriers like AT&T, T-Mobile and Verizon raise fees for unregistered numbers, the cost of using texting as a communication channel is set to rise, reshaping engagement strategies.
In this dynamic landscape, the role of AI is becoming increasingly crucial. From predictive analytics to natural language processing, AI is transforming how receivables management is conducted, yet hurdles remain. Regulatory considerations, the effectiveness of structured versus unstructured data, and the potential return on investment for AI solutions are all critical factors that the industry must grapple with.
“The next milestone for the industry is to develop tools with actionable intelligence capabilities, leveraging the vast amount of data available to create predictive analytics and business intelligence solutions,” according to the report.
As the ARM industry navigates this uncharted territory, understanding consumer preferences and adopting innovative AI solutions will be keys to your success, CAS reports.
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