Thursday, 21 February 2013

The Rise of the E-Channel in Collections

Using e-channels for debt collection can, and should, be an efficient and positive experience for the customer. Yet, as an industry, our use of available technology remains out of step with customer needs and expectations. For example, our research suggests that fewer than one in 20 debt collection transactions were conducted online in 2012, despite the fact that OfCom’s International Communications Report (December 2012) revealed that the UK was number one in the world for online shopping, with 16% of all web traffic in the UK being on a mobile or tablet device – outstripping that of any other European country. With the latest IMRG Capgemini e-Retail Sales Index survey predicting that online sales will reach £87bn in 2013, and Google saying that 59% of consumers now have and use mobile internet, how long can the debt industry continue to ignore the potential of the online and mobile internet channel?

Read the full article, originally published in the February edition of CCR, here.

By Carlos Osorio, Director e-collections and payment services, TDX Group

Wednesday, 13 February 2013

Postcode lottery? Building a collections strategy that’s personalised

As an industry there is a tendency to depersonalise debt with individuals in debt treated with generic strategies without real insight into their personal circumstances.  However, times are definitely changing and the more progressive creditors are already aware of the potential benefits associated with tailored strategies in collections and recoveries. 

New data sources and increasingly joined up technology mean that not only is it possible to better understand a debtor’s circumstances, it is also possible to act on that increased knowledge. Even at the highest possible level, the benefits associated with starting the journey towards understanding the individual are clear. Take regional variations in indebtedness; when you look across the UK, there are significant differences in the profile of individuals in debt and how they look at options to resolve their situation. For example, average bad debt per individual in East Anglia is less than half that of the South East or a third of the North West. This may seem like a fairly obvious point given associated wealth in different parts of the country, but the trend becomes increasingly interesting when you analyse how individuals in different regions address their debt. In the South West of England individuals are 22% more likely make a payment on their debt than the UK average. Compare that to payment rates in Scotland where individuals are 17% less likely to pay, and an interesting pattern begins to emerge. Across the UK, region by region, we see significant swings in payment penetration.  Continuing the regional theme, Wales is characterised by higher payment penetration but lower overall liquidation rates, which implies a higher proportion of individuals with an active desire to address their debt but perhaps without the means to do so. Compare that to the South East where the reverse is true and you would have a strong case for regional settlement strategies.

Given these regional biases, imagine the fragmentation that exists at more granular levels right down to individual circumstances and imagine knowing that before you determine a treatment strategy?

Put simply – as long as you’re using data thoughtfully, you can never know too much.

By Nick Georgiades, Director – Advisory Services at TDX Group.

Friday, 8 February 2013

Maximising Value in Debt Sale: Don't Get Hammered!

When Pierre Omidyar sold his broken laser pointer for the princely sum of $14.83 he felt obliged to contact the winning bidder of one of the first ever ebay auctions and ask if he realised that the pointer was in fact broken. The buyer explained “I’m a collector of broken laser pointers”.

What Omidyar had discovered was just how powerful the combination of providing a competitive bidding mechanism  for an asset and accessing the perfect purchaser actually is.

The debt sale market is currently a long way from Omidyar’s ideal of ‘creating the perfect market’ but there are a few key aspects of undertaking a debt sale that really do fall in to the no brainer category in terms of maximising value:

1.      Make it competitive. Private sales are an option of course, but can you really say hand on heart that they generate the best value for your organisation, your investors and your shareholders? Opening up to multiple bidders is the surest way to optimise price and there is a stack of evidence to support this.

2.      Involve the right purchasers. Knowing who is active in the market, how well funded they are, what specific types of debt they are looking for is vital information in making sure that the broken laser pointer has the perfect buyer available. Your debt might not be mainstream but we know that the right buyer is out there.

3.      Provide the platform. This isn’t just about a ‘mechanism, it’s also about providing buyers with confidence. Removing unknown factors by providing clean, consistent data removes risk for purchasers and negates defaulting to a worst case scenario view of the debt and directly translates to higher bids.

4.      Drive the bidding. What approach should you take to the bidding process; English auction, Dutch auction, sealed bids, multiple rounds? All are options and the answer is typically a combination. At TDX we are continually looking to enhance the bidding process in order to generate the most value for our clients.

This last point is often not given enough attention but is certainly something we have been focusing on at TDX. Our new bidding framework provides a powerful combination of different bidding tools, all designed to ensure that bids are optimised with less room for money to be left on the table.

Ultimately, taking the above steps should ensure a major uplift in price, and since not many companies are able to take all these steps in-house, this is an excellent example when external expertise proves its worth. So….. are you ready to sell your broken laser pointer to the right person at the right time?  

Oh, and the story that ebay was set up by Omidyar to sell his fiancĂ©’s Pez dispenser collection…..made up by a PR company to generate extra interest in the fledgling company. I guess you could say that getting in some expert advice worked!

By Mark Wright, Director of Debt Sale at TDX Group.

Friday, 1 February 2013

Default rates likely to rise in the Netherlands?

It was announced today that the Netherlands has nationalised SNS Reaal, one of the country’s largest financial institutions. With no private capital available to a level required to “guarantee the stability of the Dutch banking system” the government has intervened to compensate for heavy losses in the bank’s real estate holdings, particularly in Spanish assets, at a cost to Dutch taxpayers of €3.7 billion.

I believe there is more trouble to come. For individuals in the Netherlands, mortgages have been ubiquitous for many years and a well understood product. However, compared to most other markets there are some unique features about the Dutch market that seems destined to create a serious dislocation.

To begin with, the Dutch mortgage market is dominated by interest only mortgages, with many of those mortgages at loan to value (LTV) rates of over 100%. This proliferation of interest only mortgages was largely driven by the ability to offset interest payments against income, creating an incentive to maximise borrowing. In addition, through the boom leading up to 2008, some of the processes around underwriting these high LTV mortgages were sub-optimal and so many of these mortgages were written at over six times income. With the exception of the interest only element, this is not massively dissimilar to other markets such as the US and the UK.

The challenge in the Dutch market is what happens at the point of re-mortgage. Across the Eurozone, interest rates are at historically low levels and so for many people, re-mortgaging from a fixed rate loan actually creates an opportunity to reduce interest servicing costs and hence increase repayment. However, in the Dutch market, mortgage rates remain stubbornly high and are now in many cases higher than at the height of the mortgage lending bubble.

The rise in Dutch mortgage lending rates is fascinating given the general decline in the underlying Eurozone interest rate and is driven by the huge funding gap exhibited by most Dutch banks. Historically, in most countries, mortgage lending is paid for through a combination of savings, deposits and wholesale funding with securitisation acting as a bridge. In the Dutch market, deposit rates are very low, with savers preferring to use their pension fund as a saving tool. Those pension funds then invest around 90% of their assets in foreign markets. As a result the Dutch market was extremely reliant on securitisation to bridge the funding gap. With that tool removed for their arsenal, the banks have been forced to rely heavily on the wholesale market, which is applying real premiums to high LTV mortgage assets.

As a result, when many of the 5-10 year fixed rate mortgages written at or around 2007/8 come to re-mortgage, the individuals may find their servicing costs increasing rapidly. This coupled with rising unemployment and increasing premiums on the compulsory government backed mortgage insurance scheme is likely to see many home owners unpleasantly surprised as their repayments spiral.

By Stuart Bungay, Managing Director - Strategy, Marketing and International, TDX Group.