By Rebecca Stephan, TSYS

Trapped in an avalanche of delinquency with even fewer options for consumers to make a payment, the collections business has faced a variety of challenges that have become major impediments to their overarching objective of recovery — job loss, waning consumer confidence, lack of home equity and the overall bleak economy.

However, it’s not all bad news for the collections industry: An emerging demographic of delinquent cardholders has an increased comfort in online personal financial management. Due to these microeconomic changes, financial institutions are focusing more on implementing new collections and recovery technologies for this demographic.

According to a TowerGroup survey of senior employees at major financial institutions, 50 percent ranked business process automation to be one of their top three strategies. With these statistics, and the industry’s ever-increased focus on efficiencies, it’s no surprise that self-service Web sites are becoming one of the fastest growing channels for collections.

Today, there’s nary a business that has escaped the call to do more with less, and all have increased their focus on lowering costs and gaining a competitive edge in the marketplace. Thus, online collections have become attractive not only from an efficiency standpoint, but also as a differentiator to help companies gain an advantage over their competition.

Traditionally, a financial institution’s Web presence has been geared toward “good customers.” Once a customer has become delinquent on an account, agents typically request that the cardholder contact them by phone or only allow the customer to make a payment in full. With self-service collections, the cardholder logs in to the financial institution’s Web site and is immediately redirected to a separate site that offers a variety of payment arrangements that might help bring the account current or introduce settlement offers.

But what if the cardholder opts not to participate in any of the payment options? Some online providers gather information from the cardholder and make alternative offers based on their unique preferences. This information can also be housed by the bank for future collections efforts, with educational tools posted on the site that help cardholders better understand the consequences of the delinquency.

And that’s not to mention the benefits for the consumer. If you’ve ever accidentally missed a bill payment, you know that some live agents can be somewhat “frosty” to customers who have failed to pay. By utilizing virtual channels, debtors can also manage past-due debt or make payment arrangements for their delinquent account without the embarrassment or fear of speaking to a collections agent.

By providing this perceived cloak of anonymity, many banks have seen a positive response from customers, along with greater overall satisfaction and retention. The self-service approach has proven less expensive to scale up than hiring additional collections agents and encourages existing agents to focus on helping customers meet their payments.

There are several self-service solutions available in the market today — all sharing the same vision to help companies increase their collections rates. Although they share the same vision, the solutions can differ greatly in their methodologies and their product offering, so do your research to take full advantage.