This article appears in the January issue of Collections & Credit Risk.
With economic conditions worsening at a frightening pace and more collection agencies fighting to stay in business, it is critical for agencies to reevaluate how they use technology tools to boost contacts and recoveries.
"The economic climate is shifting fast and how technology is used to aide collections needs to be rethought," says Mike Bendickson, president and CEO at Absolute Resolutions Corp., a San Diego-based collection agency and debt buyer.
At The Affiliated Group, a Rochester, Minn.-based accounts receivable management firm, Mark Neeb, president and CEO, believes investing in technology is critical – even if it is financially difficult.
His company is installing a new autodialer with full interactive voice response (IVR) capabilities to offer individuals more ways to pay without talking to a live operator. The company is about to complete a Web portal to enable individuals to view accounts and negotiate settlements online. "We can't control how much money consumers have but we can control our efficiencies," says Neeb.
Absolute Resolutions, too, is emphasizing the use of dialers. "Our agent workload has more than doubled from a year ago. Dialers have increased our contact rate by about 8%," he says.
Scoring models seem less reliable in the volatile economy, he says. Used to predict a debtor's ability to pay, programmers cannot get access to the latest data fast enough.
"We are not using scoring models much because we have found that while we may be able to reach the debtor, their financial situation may have changed so much since the last update that they don't have the money to pay," says Bendickson. "It's why our recoveries and promises to pay are flat."
Absolute Resolutions' wariness about the effectiveness of scoring models in the current economic climate reflects the overall frustration many lenders and agencies feel about the declining effectiveness of their tech tools in general, according to collection industry experts.
To overcome the problem, lenders and agencies may need to move away from the industry's traditional view of technology as a way to create operating efficiencies and lower costs. Instead, they must integrate tools such as IVR, scoring models and Web sites deeper into their operating platforms to improve customer interactions. Doing so, they argue, will create more effective treatment strategies.
"Collection managers are going to have to think more deeply about how they use technology to improve debtor interactions and treatment strategies by breaking down the barriers between collection channels," says Brian Reiss, managing director – U.S. Practice at Bridgeforce Inc., a Newark, Del.-based consumer lending and risk management consultancy.
To achieve this goal, agencies and lenders will need to integrate their communication and collection channels to better judge debtor preferences, then create treatment strategies. For example, many debtors will call a contact center after hours or on the weekend. Typically these customers reach an IVR that may not be integrated to the call center's main database and thus incapable of being programmed to interact with the debtor. Others may log on to a Web site that offers generic treatment strategies.
In many cases, a debtor's first contact through these channels is a scouting trip to view available options. If none are palatable, the debtor will drop the contact.
Recording debtor contacts and feeding them into a core collection platform enables collection managers to craft treatment strategies likely to generate a payment or a promise to pay. Agents working the account can be asked to leave a phone message informing the debtor that payment options are available through their desired communications channel.
"Collection managers need to use more creative techniques and communication strategies," says Mike Geppert, senior vice president, Global Product Solutions, Information Services Group at Greenwood Village, Colo.-based First Data Corp.
"Every debtor has a preference for how they want to interact with the lender during the collections process and the goal is to use technology in a way that makes them comfortable."
Collection managers can improve recoveries by tracking debtor interactions through their favored communications channel when contact occurs, then staff accordingly. By doing so, debtors will have the option of speaking to a live agent. The agent also can monitor the customer interaction to push alternative treatment strategies if the debtor does not respond to the initial offer. "Linking all communications channels to the call center makes it possible to have veteran agents available who can work with the debtor to come to a resolution, rather than rookie agents that follow generic guidelines or no agents at all," says Vytas Kisielius, CEO at Collections Marketing Center, a Newark, Del.-based provider of collections technology. "Collection departments have to get in sync with the reality of how debtors communicate with them."
Collections Marketing Center has one client using the Web to offer debtors a loan modification program. Debtors receive letters directing them to a Web site where they fill out a form similar to a loan application that asks about their financial situation. After the information is processed, debtors receive a targeted treatment strategy.
Debtors often are inclined to use self-service channels to resolve debts because of convenience and anonymity, says Ken Montgomery, CEO of White Plains N.Y.-based Debt Resolve Inc., an online collections application firm.
Online collections also offer lenders a way to lower operating costs at a time when reduced recovery rates have lowered margins. "The liquidity issue is affecting agencies, not just consumers," says Geppert. "This trend is having a direct impact on operating budgets and how technology is applied."
The online channel is proving to be cost effective for low-dollar debts. Debt Resolve has had talks with a hospital interested in using its system to collect co-payments that often are less than $50. Most agencies will not work a portfolio with such low balances and those that are willing to do so charge hefty premiums.
Debt Resolve, which operates a branded Web site on behalf of the lender using an ASP model, offers its services for about one-third of what an agency would charge, says Montgomery.
Debtors logging onto a Debt Resolve operated site begin negotiating to settle the debt. Lenders set the parameters for the negotiating process including counter offers.
"Lenders and creditors are thinking more about what type of debt is appropriate for collections through the online channel and funneling it there," says Montgomery. "Our clients are collecting up to 18% more than they would with other treatment strategies."
No talk of technology tools would be complete without including scoring models, which have proven their value in helping create the right treatment strategies. The heart of any scoring model remains accuracy and depth of data fed into it.
"Even in the best of times, scoring models need to be fine-tuned regularly," says Geppert. "A lot of the variables used today are not as predictive because of how fast the economic climate is changing, which means collection managers need to be looking for new sources of data."
Credit Bureaus remain one of the richest sources of data available. Not only can the bureaus provide information such as address, phone number and employer, they can track whether a debtor has opened a new credit line and how close the debtor is to maxing out existing lines.
Other data sources can be found in-house or obtained from the lender. The age of the debt, how aggressively it has been worked and by what methods can indicate whether the account has reached the point of diminishing returns. Agent notes or information gathered about the debtor from self-service channels can provide insights about which new treatment strategies may be met with a favorable response by the debtor.
"Over the next 6 months to 18 months, lenders and collection managers are going to have to revalidate their scoring models," " says Scott Carter, group vice president of collections at credit bureau TransUnion LLC. "That means not only getting the most current data but digging deeper to get data that yields better insights into collectability."
Scoring models are expected to be used for segmenting which accounts are best worked using self-service channels or by agents. Models can determine the skill level of the agent needed to work the account. "Every agency and collection department has a finite calling capacity. Scoring can help determine the work slope," says Carter.
"Technology is going to be important to improving operating efficiency in this environment and part of the efficiency is to determine which accounts need a basic hands on approach."
With the economy not expected to show much improvement until at least late this year, lenders and agencies that do not think more creatively about using technology will struggle to survive. CCR