What was once a rigid routine, conducted through call centres, is being done by tech-enabled interactions. Regulatory and compliance pressures are playing a role. One-size-fits-all collection strategies are becoming less effective, and in some cases risk running afoul of evolving frameworks on fairness and transparency. The rollout of debt collection norms by the Fintech Association for Consumer Empowerment (FACE) has also played its part.
Surprisingly, for a business that is so critical to lenders (retail margins are high), there is little by way of sizing studies — as in how much of retail credit rides on the efficiency of the debt collection channel. You have to infer it from a surrogate datapoint. The International Market Analysis Research and Consulting (IMARC) Group has it that the debt collection software market grew from $190.9 million in 2025 to $220.2 million in 2026. It is expected to reach $484.4 million by 2034 — a compound annual growth rate of 10.35 per cent over the next eight years.
Another way to look at it (in the near term, at least) is through the Reserve Bank of India’s (RBI’s) Financial Stability Report of June 2026. It cites a retail quality trend: Gross bad loans in secured and unsecured retail loans were at 0.7 per cent and 1.7 per cent, respectively, at end-March 2026. “Nonetheless, exposure to these sectors requires close monitoring as risks to asset quality could increase, especially if overall economic conditions weaken due to the West Asia conflict and impact borrower cash flows,” it held.
Nitin Purswani, cofounder and CEO of Medius AI, points to National Automated Clearing House (NACH) data on bounce rates or insufficient funds for repayments. “One in four NACH debits bounces for insufficient funds, and about seven in 10 UPI Autopay attempts fail…as for stress, the headline looks calm. The stress sits lower down. During the festive season, spending always takes priority over EMIs.”
Nitin Purswani Cofounder and CEO, Medius AI
It could be the reason why the retail credit market is continuing a structural shift, with secured products led by gold loans and supported by the continued stability of housing finance (CRIF’s How India Lends report for FY26). You also have premiumisation across products, indicating rising average ticket sizes. This is evident even in the most secured segment: Home loans, where the ₹75 lakh-plus ticket-size now accounts for 40.7 per cent of originations value, up from 33.6 per cent in Q4FY24.
A big plus is that digital collections are not intrusive. They help cut down huge costs, like when sending recovery agents to check on borrowers. A single field visit costs anywhere between ₹250 to ₹500, but there’s no surety it will lead to settlement even after a few tries. The biggest opportunity is with compliance. Unlike in the past, digital systems capture data during the collections process itself.
“When the process is fully automated, much of that compliance work disappears. Collections officers can refocus their efforts on making recoveries, and compliance costs associated with business are much lower and processes run more smoothly,” says Siddharth Agarwal, founder and managing director of Mobicule, a debt collection platform. He believes that “digital outreach, field operations, contact centres and notice management should all sit on one platform, with compliance embedded throughout.”
Siddharth Agarwal Founder & MD, Mobicule
FACE — the RBI-recognised self-regulatory organisation (SRO) for fintechs — released its guidelines on debt recovery in September last year. It set safeguards on governance, agent conduct, borrower disclosure, data-protection and artificial intelligence for digital and field recoveries across shadow banks, lending service providers and collection-tech firms. Fintechs primarily engage in unsecured lending to customer segments often on the fringes, such as street vendors. Given this profile, these segments are invariably prone to shocks and delinquencies. “In this context, robust, respectful and responsible debt collection becomes all the more critical. Fintechs’ focus on technology, data and customer experience is reimagining aspects of lending, including collection. Regulations clearly define no-go zones for collections protecting customers’ rights to privacy and fair treatment”, notes Sugandh Saxena, CEO of FACE.
The big variable to look out for is the Digital Personal Data Protection (DPDP) Act, 2023, and regulatory expectations on model risk management and data governance. These regulations are bringing foundational shifts in collecting, using, sharing and handling data. “Besides the regulatory framework, tech and consumer expectations will shape this journey. Other equally important aspects are fit-to-purpose proportionality, [and] cultivating capacity and culture alongside practices at an ecosystem level. As an SRO, FACE will converge and channel industry thinking and action in these areas.”
This is a primary factor driving IMARC’s observation about the huge growth expected in debt collection software demand. The introduction of privacy laws and consumer protection regulations is further driving the adoption of software that prioritises ethical and transparent debt collection. “As regulatory scrutiny grows, enterprises are leveraging compliance-focused software to maintain transparency, safeguard customer data, and avoid legal challenges, ensuring sustainable and efficient debt recovery processes,” IMARC said in its report on debt collection software.
Debt collection is shifting towards frictionless recovery.
Source link
