Arbitration

Expediting debt settlements using the Online Dispute Resolution framework

Online Dispute Resolution

The debt recovery process entails a lender sending out reminders, collecting payments, and, if necessary, initiating legal action against the party that defaults. Disputes will inevitably arise regarding the legal side of debt recovery. However, due to the overwhelming number of cases that are already on the docket, the traditional legal strategy of having cases resolved in court does not guarantee prompt justice.

At the start of 2020, there were over 35 lakh cheque bounce cases pending in courts across the country. In an effort to increase loan recovery rates for defaulting customers, Online Dispute Resolution (ODR) is a digital-first approach to resolving banking disputes involving low-cost customer transactions.

This blog aims to showcase how online dispute resolution will become an essential tool in the Indian debt resolution space.

What is ODR?

Online Dispute Resolution (“ODR”) is a branch of alternate dispute resolution that leverages modern communication technologies such as video calling, e-mail, and messaging applications while eliminating the need for parties to be physically present. This space gained popularity, particularly since the pandemic hit industries and increased the demand for digital services. In order to address customer complaints and disputes related to digital payments, the Reserve Bank of India (RBI) introduced ODR. 

A study by Dalberg found that using technology greatly reduces costs while streamlining and accelerating the process. In contrast to the formal legal system, which can take up to 1,825 days to resolve disputes, ODR can do so in 45 to 90 days. ODR costs no more than 1% of the claim value, versus 30% in court cases.

How can ODR expedite debt resolution?

ODR is ideal for small and medium-value cases that are likely to be resolved without a trial, do not involve complex legal issues, and would otherwise be very expensive to pursue through the traditional physical dispute resolution channels. ODR enables disputes to be settled quickly and affordably, paving the way for it to be an effective tool for debt recovery. 

The most common methods are:

Arbitration

Both parties involved approach an arbitrator who renders a judgment from a position of impartiality.

Mediation

Online Mediation enables the parties involved to drive settlement terms by presenting evidence, reasonable arguments, and possible solutions, 

Negotiations

Negotiations are a novel ODR technique that enables businesses to have one-on-one discussions to come to a resolution. For instance, CIBIL scores are used to learn more about both parties’ credit flows. This thorough analysis of the competition enables the presentation of deals that are beneficial to both parties.

Advantages of ODR in debt recovery

Data, artificial intelligence, and integration with other digital services are the keys to the effective implementation of ODR. It facilitates dispute resolution by enhancing participation, accessibility, and autonomy in the process. If the dispute is not resolved, the parties can select a different mode of resolution.

Automation 

ODR offers the option to automate many stages of the debt recovery process with no or little manual intervention, minimizing manual work and speeding up turnaround times. By utilizing ML-based insights, the lender’s litigation team can, in the most advanced stages of technology, identify potential customers who default on their payments and alert companies of the risk, enabling them to take action quickly using ODR.

Cost-Efficient Operations

ODR reduces costs significantly with automated and digital methods as compared to  manual debt recovery operations. This impacts the overall process efficiency for the lender’s legal teams and reduces their time-to-collection rate. The ROI that ODR promises to deliver is way ahead of that of manual processes.

Data Security

A secure data platform for debt recovery through online arbitration protects customer data from tampering or unauthorized access. Analytics and AI can be leveraged to observe transactions and monitor them for suspicious activity.

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