VRL hosted a round table in
London to discuss how the financial crisis is reshaping lenders’
collection strategies. Topics examined included the debt purchase
and sale market, developments in outsourcing, lenders’ current
thoughts on the role of litigation and the evolving role of
technology. Douglas Blakey reports
Go deeper with GlobalData
As the UK
and other leading western economies slowly emerge from recession,
consumer debt remains a critical challenge for the financial
services industry.
Debt has crept into affluent
sections of society and collections departments are under
increasing pressure as the volume of work grows and the amount of
delinquent debt rises.
In addition, government
intervention in the banking sector, coupled with growing media
interest, has added extra pressure to the already sensitive issue
of debt collection and recoveries.
Lenders are increasingly required
to develop policies to look after the so-called ‘good’ customers
that keep up repayments and the ‘bad’ that prioritise other
payments.
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By GlobalDataSince the onset of the crisis,
demand has risen for new types of data-based solutions that enable
lenders to differentiate between segments of the market.
Advances in credit decisioning
software have included the ability to combine risk-based scoring
with economic modelling, giving forward-looking predictions on how
consumers will behave.
Meanwhile, the recession has
extended to the debt collection sector itself. Among the estimated
600 debt collection agencies in the UK that have a combined
turnover of almost £700m ($1.1bn) per annum, 10% have been forced
to cease trading during 2009, up from 6% in 2008.
It was these sorts of issues and
questions and a host of others that were analysed and debated at
VRL’s recent round table on collections and recoveries.
Representatives from 14 leading
industry players including Citigroup, Lloyds Banking Group, FICO
and Experian, as well as representatives speaking on behalf of the
regulators and the consumer, came together to break down the key
issues both from a specific UK perspective and a wider, global
view.
The event was sponsored by UK-based
solicitors Irwin Mitchell and represented by partner Mark Higgins,
who looks after the firm’s volume recoveries practice, which
includes secured and unsecured recoveries.
Higgins also heads up Ascent
Collections Ltd, a full-service debt collection agency owned by
Irwin Mitchell that covers all types of debt across the UK.
Ascent works in two separate
service areas: Ascent Collections (customer contacting, litigation
and debt purchasing) and Ascent Contact (debt counselling and
claims support services).
The following is an edited version
of the discussion that took place.
Question to Andrew Ball,
head of UK collections, Citigroup and to Sean O’Brien, Head of
Collections Risk Analytics, Lloyds: How are lenders coping with
negative PR dangers arising from energetic recovery strategies? Is
the fear of adverse PR impacting the way lenders’ collections units
are operating?
Andrew Ball, UK Head of
Collections at Citigroup: It has been quite difficult
especially in initial phone conversations. There are preconceptions
about the reason for your phone call as a result of the press,
which creates a hurdle.
A lot of work has been done from
advisor level but it is difficult to get over the point to the
customer that we are trying to help. The customer already has set
in their mind who you are and the reason for your call.
Five years ago we had maybe one
mitigation tool for someone, now we have a plethora of mitigation
tools and not just one situation fits all. A lot of effort goes
into find out how we can help customers.
Simple things such as scrapping
average handling time targets (AHT) so we can talk to customers has
helped. From a PR standpoint it has been difficult to make that
first contact but once that has happened you can build up a
relationship. It is that relationship between the bank and the
customer that has been damaged.
Sean O’Brien, Head of
Collections Risk Analytics, Lloyds: There have been
several changes in the past few years. There has been reticence on
the part of some customers to come forward and without a shadow of
a doubt part of that has been driven by negative PR.
That has driven some customers not
to respond and we recognise that.
We have changed our practices in
line with conversations with the regulators and what our peer
groups are telling us as well. Activities that we have moved in
this space include: the way we approach customers; our core model;
a move away from scripts; we have abandoned AHT targets to enable
the core model to be more successful.
Back in 2009 it would, I think, be
fair to say that both the Lloyds and Halifax brands were not in a
good space. We have done a lot of work since then to put ourselves
in a better position with the regulators.
That has required a lot of work
soul searching about what is productive.
Douglas Blakey, editor
of Retail Banker International:
Have you seen a reduction in customer complaints?
Sean O’Brien:
There were aspects of collections where we were doing things like
calling customers seven times a day – ridiculous spin levels – and
when you really look at it, a maximum of one phone call a day was
all that was required to get the payments in. That has helped us
cut down an army of people we had in our complaints department. So,
it has had a positive side to it.
When we look at benchmarking
sessions, we have not been adversely impacted by our collections
strategy when you compare ourselves to our peers.
We did have a pretty rough ride in
the back end of 2008 and into 2009 but things have improved since
and we have been on that trend both the collections and recovery
side.
Overall I do not think it has
damaged our profitability. Maybe we occasionally have some harsh
feedback because we carried too many staff in certain areas and the
job losses we had to make as a result have received some negative
publicity.
We have also introduced a net
promoter score and that has given us a benchmark to gauge how we
are performing.
Douglas Blakey:
Staff training – has that been an issue, a challenge?
Sean O’Brien:
Generally, the staff have been supportive of the changes we have
made and changes that are ongoing. One of the things staff was
anxious about at the time was the introduction of the core model in
replace of AHT targets.
Andrew Ball: We
moved away from how many pounds you collected towards a positive
resolution.
Sometimes it is not about
collecting the most you possibly can from a customer, it is about
understanding their difficulties.
There is a core quality score staff
has to meet now. They have to meet the minimum requirement before
they are even entered into the bonus pool.
That minimum requirement is: have
you have you got to the base of the issue?
Mark Higgins, Partner,
Irwin Mitchell: How do you measure stickability of the
changes that have been put in place?
Andrew Ball: From
an Egg perspective it is about stabilising the account. The
question to our staff always used to be: ‘How much did you collect
in the least amount of time?’ Now, as we do not pay a bonus until a
two month lag, the key question is: has the account you collected,
stayed out of collections for that period?
We have also moved off the dialler
system, allowing the advisor to access the history of the customer
and develop a more personal relationship with them. It is all about
starting to build up a full picture of the customer.
Alex MacDermott, Creditor
Liaison Policy Officer, Citizens Advice Bureau: From the
consumer side this is really interesting to see.
The CAB produced a report flagging
this issue up called Do the Right Thing: Best Practice in Debt
Collection. All of those featured in the report that were
operating best practice were all measuring stickability. It is nice
to see some of the big lenders starting to move this way.
The reduction in complaints and
valuing sustainability is welcome, we think there is a lot of value
in that.
Janice Horan, Senior
Director at FICO, EMEA: We are seeing requests for some
more segmentation in the pre-delinquency status to identify who are
the higher risk customers.
Collection agencies are looking to
find out whether anything that can be done from an account
perspective – particularly on revolving credit – has been done to
minimise what could be an eventual loss, as well as ensuring
everything possible can be done to encourage the customer to
initiative contact.
There is a resolution to keep the
customer an active customer and return them to good standing.
However, there is a significant portion of the public who will
assume if they get a call from a creditor it is bad news and not a
call they want to participate in.
Alex MacDermott:
If you look at typical CAB debt clients, they will generally have
multiple creditors and not all of them will be carrying out best
practice at all times.
If all creditors call once a day,
this can mean six or seven calls a day for these customers and
sometimes they can be asked to pay amounts they simply do not have
and do things they cannot do. We think there is a need for greater
co-operation between creditors.
I am very pleased that the lending
code mentioned pre-delinquency but we do still see cases where
people are told: ‘You are not yet in arrears, so we can’t help
you.
Chris Buckham, Director
Marketing and Collections, Experian: It is an operational
challenge for all of us. Someone who is pre- delinquent is by
definition not delinquent. These are ‘good’ customers and should be
treated as such. So who works with them? Is it customer service or
collection?
Janice Horan: Yes,
at FICO this is a challenge we are hearing more about, but there is
no general standard about how to proceed forward from that.
Question from Peter Wallwork,
CEO, Credit Services Association to Sean O’Brien: How do you expect
collection agencies that you employ to work? How are you taking
your strategy forward with the agencies you use?
Sean O’Brien: We
expect debt collection agencies to comply to the standards we
operate to in our own organisation.
There is an issue around the data
that is passed to the agencies and we all recognise that can be
improved.
Peter Wallwork: I
am not directing that question to Lloyds as such but there have
been instances with a number of clients in the past. Due to the
competitive environment we work in, some lenders have been known to
tell debt collection agencies: ‘You will do this in that way,
because if you don’t there are plenty of other agencies that
will.’
I think it is great that you have
got rid of AHT targets, but our members do have to look at the sums
collected.
Our job is to try and change the
perception of our industry and that will take some time and is a
pretty tough task. It is something we have to do. Some of the
things we at the CSA are doing is to emphasise standards and the
fact that our members our meeting them.
Chris Buckham: It
is a two-way street. A lot of your members, Peter, have sharpened
up their act in the past few years and some of your guys are doing
a good job.
Toby Walker: Head of
Collections, Central Trust: We have had to really shift
our practices in the past couple of years. We have moved to an
account management system for our collections team on late
collections where they really try to develop a relationship with
those debtors in serious arrears and try and rehabilitate them.
This has really worked for us.
Douglas Blakey: Do
you use social media and consumer forums to monitor how consumers
view your debt collection practices? And if so, in what way?
Sean O’Brien: We
do not use it for monitoring or any debt collections activity per
se but we keep a firm eye on what is driving complaints.
The biggest complaint issues are
around charges and the right of set off. Customers tend to fall
into two camps in their view of collection practices. They either
see it as a service and expect it, or they see it as us taking
money indiscriminately.
Chris Buckham: On
a social networking point, one of our groups put together a pilot
group built on a programme of trying to find people.
Third-party accounts certainly use
Google as a tracing method for the hard-to-find accounts.
Aggregated data from around 20 to 30 social networking sites – all
ones you have heard of and a few you may not have heard of.
The proof of concept is interesting
but what you have got is an incredibly complicated amount of
unstructured data that is of limited use in finding people and may
only be of use to a skilled collector.
Our view today would be there is
not really a good model which we can learn something from, other
than we can see from this person’s Facebook account that they are
going out and spending money partying, but how useful that is to a
collector is limited.
Douglas Blakey:
How is segmentation rising in importance? From a technology point
of view, how are advances being made in terms of segmentation?
Janice Horan:
Segmentation becomes important when there are individuals entering
collections queues who are not sure how they are expected to behave
when they get there.
They were people who were
previously entrenched in the middle or upper class, and that has
caused some of the shift we are hearing about.
It is this shift that makes it
increasingly important to talk to the customer and understand what
is happening from the customer circumstance.
We also have to ask if there is
data we should be looking at in segmenting the customers that we
have been ignoring? In a lot of banks, there are particular
collection silos which dealt with individual products. But the
reality in a banking situation is that if a customer has a
relationship with you on multiple products, especially if it is
multiple lending products, they tend to behave better across these
products and to be more profitable for the bank as a whole.
There are theories about whether
that is because of loyalty or whether it is about a feeling of fear
that when they walk into their local branch, the teller will know
they are behind with their auto loan. Either way, it is called the
halo effect and it’s real.
If I was a full-service bank I
should be looking at what is going on in the deposit account
because we would know a lot earlier if the automated deposit that
comes in from the paycheck every month stops. It gives me an
opportunity to talk to the consumer with the maximum amount of time
toward problem solving.
The customer may be grateful if the
bank says, “We are seeing something which is anomalous with your
account… how we can work with you?”
We have seen banks, such as Wells
Fargo in the US, who have taken on this approach and it has been
very impactful for them in terms of getting customers in to
restructure debts and getting customers into loss mitigation
programmes.
The approach is important in terms
of making sure you understand the customer’s circumstance and doing
the things Sean was talking about – to cure the situation rather
than just get the payment in.
Louise Naughton, Reporter,
Cards International: How is the technology
evolving?
Janice Horan:
There is a customer base which has become more mobile and been able
to use that to hide from collectors. The landline has gone and they
exist on their mobile. This has in some way been helpful in the
customer feeling in control of the dialogue.
Some lenders have given control
back to the customer with the creation of internet portals so the
customer feels they are in control.
Through this, the customer does not
have the humiliation factor of dealing with a human being. The net
result in some of the early testing indicates that the lenders who
have taken on this approach are seeing higher%ages of promises made
and kept, with a lower overall collection cost.
Phil Walker, Managing
Director, EBS Consulting: The whole dynamic is changing
from outbound telephone calls and letters to the customer now being
in control.
Having moved away from landlines we
now think about the technology of the self-serve portal – this is
like the websites for airlines and how they sell tickets – where
you deal with the matter in your own time and in your own
convenience and the same thing is happening in the collection
environment.
I am certainly seeing a high uplift
of this type of self service technology and some of my clients are
using it in the UK already. It will become a very effective tool
and will totally change the dynamic of the collections industry
over the next two to five years. It’s that big.
Sean O’Brien: This
technology refers back to the issue of segmentation and we want to
use that for customers who will use that channel. So we see it is
as very important and the next big development.
Janice Horan: This
also impacts customer service forms. Now it is not enough to ask
customers: ‘What is your home phone number?’ Instead, the question
to ask is: ‘What number do you want to be contacted on?’
That information also needs to be
refreshed every time you have an encounter with the customer, so if
a customer does wind up in a collection queue, staff are not trying
to contact them on a number that has been out of date for two
years.
Alex MacDermott:
Segmentation is there to help those that are literate and are IT
capable, which is great. But is there a similar help available for
those who are more vulnerable or who have literacy problems and
those who cannot or will not access the internet?
If resources are being saved as a
result of web portals, could these funds be redirected to help the
more vulnerable? That proportion of the population still needs to
be looked after. They are probably more used to being in a
collection environment, but they need that extra help.
Janice
Horan: This comes back to the PR aspect. I collected
automobile debts in the 1980s, where interest rates were at 19 to
21% and we still used ledger cards. Auto dealers were not regarded
as the most scrupulous individuals when it came to underwriting
loans and guiding customers into the best financial
circumstances.
What I learned is that most
individuals who are legally able to sign and create a credit
obligation are not all intellectually able to understand what they
have signed up for. That cuts across income and education
levels.
This is because it is a basic fact
that in Western society there is no practical credit education
programme for consumers althoughbns have been spent at federal
level in the US to try and enact meaningful programmes. When it
comes down to credit, collections and banking there has to be a
‘teachable moment’.
This currently does not occur in
schools or colleges but in the first time you land in a collections
queue and you have to have a real conversation about where funds
come from and how you honour obligations.
There is a lobby group in
Minnesota, US. Their website talks about the positive role that the
collector plays in the consumer economy. It can be the first time
someone focuses on how a debt can be paid and helps customers get
through this, rather than focusing on selling more lending. Telling
the customer that if it is a temporary situation the debt can be
dealt with in one way and, if it is permanent, it may be dealt with
in another way.
It is that problem-solving aspect
where if it is done in the way that Sean is talking about it can
create an extraordinarily loyal customer because you helped them at
a vulnerable time. That is the type of experience that would be
helpful if we could get customers talking about on social
networking sites.
A message we should showcase more
when we do reach out to consumers is: if you do end up in our
collection shops we are there to help you. Most consumers do not
believe that, but as an industry we do not want to own your houses
or cars, we want you to see you perform well in the loan that you
have.
Peter Wallwork:
Social networking is the modern equivalent of the bloke down the
pub, but it is a slightly bigger hurdle for the collections agency.
Getting the education and information out through that portal is
definitely the way to do it.
Douglas Blakey: To
what extent are banks disadvantaged because their ownership may be
in doubt resulting in the tap being turned off in terms of IT
investment?
Andrew Ball: It is
impacting on us and if you said to anyone, “There is a big pot of
money and you can have absolutely anything you want” we would all
want a lot of things doing. Internet collections for Egg, as an
internet bank, is great as we have internet-savvy customers.
There is a lot that we would like
to do but I would not agree nothing is being done, we are just
being more selective in terms of what technology we invest in.
Phil Walker: I do
think the recession has slowed down the rate at which people would
like to take advantage of new technology.
Chris Buckham: As
economies emerge from recession we have started to see strategic
investments in collections technology. Questions are being asked by
banks as to how they can break down the silos and integrate the key
data used in segmentation.
There has been a phenomenal amount
of investment in collections in Australia, for example in the past
couple of years.
Douglas Blakey:
And in Canada as well?
Janice Horan:
Canada does not have pre-screening, a driver of a lot of the credit
growth in the US. Canada has always relied on cross-selling and the
mortgage as the lead product – a five-year vehicle that turns over
very quickly, and that is where banks hook customers.
When you sign a mortgage
application in Canada you are giving the finance provider the right
to tell me if I qualify for other credit products that your bank
may offer. They have long since gone to a customer management
approach and enacted technology that gives that customer view.
We did work with McKinsey in the
North American market and looked at card issuers that have a 14%
lower coincident loss rate than those practitioners that had an
account overview. So there is power in knowing what is going on
with a customer relationship.
Canada did an excellent job of
instituting one-stop collections in many instances and also
conducted some of the earliest pre-delinquency collections testing
where they identified high-risk customers and made phone calls.
They found the initial results very promising but, about four
months later, the bankruptcy rates started to increase. The
question then became whether they did a great job of identifying a
high-risk population or panic higher risk customers into doing
something.
Question from Mark Higgins: As
the debt purchase market appears to be returning to stability, I
would be interested in understanding people’s views as to where the
market is going.
Janice Horan: We
are not getting a lot of enquiries about the debt purchase market.
Prior to 2008, we were being asked questions from pretty much every
country we were in about how to get into the market.
We are seeing a significant shift
in interest to make sure that placements into collection agencies
are optimised for maximum returns which suggests there are
portfolio segments that are being groomed for sale on the debt
purchase market. I think it is on the verge of stabilising, but is
not quite there yet.
Chris Buckham: We
are broadly seeing the same. I wouldn’t say those in the debt
purchasing market two or three years ago got burned by the economic
crisis. They just had a great time and now reality has set in.
We did some analysis on DCA market
profitability, which we put together in a report that came out
earlier this year. While there are some winners, there are a lot
more losers over the last couple of years in this market, – which
is exactly what you would expect. Stabilisation is key. I doubt it
will get back to where it was in 2007.
