Lenders Say AI To Fintech Startups For Debt Collection

Synopsis

Lenders are now turning to AI-led models which can reduce the cost of each collection journey. This is opening a business opportunity for new-age startups to disrupt the traditional collections business. Recently, financial software services provider Perfios acquired CreditNirvana, a collections and debt management platform, to help banks and NBFCs streamline loan recovery, reduce delinquencies, and enhance portfolio performance.

Signs of stress on unsecured consumer loans have seen lenders scouting for effective debt collection mechanisms through fintech startups. Several like Yubi-owned SpoctoX, Perfios-owned CreditNirvana, Rezolv and Credgenics are using advanced technology-led models to analyse large data sets to predict borrower behaviour, pre-empt defaults by closely monitoring transaction activity on the borrower’s account, and devise effective recovery means for the defaulters. Venture investors believe small ticket size loans, which have grown significantly over the last few years, cannot be collected via traditional routes that involve manual follow-ups, call centres, field agents, and legal notices.

Lenders are now turning to AI-led models which can reduce the cost of each collection journey. This is opening a business opportunity for new-age startups to disrupt the traditional collections business.

Recently, financial software services provider Perfios acquired CreditNirvana, a collections and debt management platform, to help banks and NBFCs streamline loan recovery, reduce delinquencies, and enhance portfolio performance.

“Not a lot of innovations have happened in this (debt collection) space and not many people have gotten into it or figured out how to solve it. Also, not much technology has been used. So, there is ample scope and room to grow,” Sabyasachi Goswami, CEO of Perfios, told ET in an interaction. According to industry executives, AI-driven models are effective in analysing borrower behaviour, predicting repayment risks, and personalising collection strategies. These AI models can process large datasets to identify patterns in borrower behaviour and predict the likelihood of repayment, allowing banks and financial institutions to customise their recovery strategies accordingly.

Also, AI algorithms help automate reminders, improve communication through SMS, email, or voice calls, and adjust the timing and content of collection messages.

Last month, cofounders of digital lending startup Kissht Karan Mehta and Sonali Jindal stepped down to launch Rezolv, a debt resolution platform for banks and NBFCs. The startup also raised $3.5 million in seed funding from 3one4 Capital.

“The challenge with the current lending industry is that every lender has data in different silos and operations are run on multiple platforms with no scope of unified analytics. This approach was a smaller problem when the number of loans were much lesser, and the customer quality was higher,” said Mehta.

Meanwhile, CredResolve, an AI-driven collections platform, raised $1.1 million in seed funding in March led by Unleash Capital Partners.

According to data from intelligence platform Tracxn, venture capital firms have invested over $880 million in debt collection and resolution startups over the past three years.

For venture capitalists, the key challenge is backing scalable solutions while ensuring compliance with India’s evolving financial regulations in the country.

While AI offers better analytics and faster decision-making, industry executives acknowledge that it is not a quick fix. The sector is still in the early stages of technological transformation, and the long-term impact of AI-driven collections remains to be seen.

“As lending activity grows, there is additional pressure on collections, which in turn affects the quality of assets on the balance sheets of banks and financial institutions. Consequently, more resources are being allocated to ensure the efficiency of the collections process,” said Akshay Sharma, vice president, investments, at 3one4 Capital.

In 2023, Credgenics raised $50 million in a Series B funding round led by WestBridge Capital, Accel, Tanglin Ventures, and Beams Fintech Fund. Similarly, in March 2024, Gurugram-based Freed raised $7.5 million in a funding round led by Sanjay Nayar-backed Sorin Investments and early-stage venture fund Multiply Ventures.

Executives added that the growing demand for real-time data, predictive insights, and borrower-friendly repayment strategies is driving investment in both tech-driven and service-based approaches of debt resolution, making collections a rapidly evolving segment in India’s fintech ecosystem.