Head in the clouds

I recently read an article on the BBC news site about wastage in local government. The statistic that really stood out to me was that of the £440 million spent by councils on IT in 2012-2013 only £385,000 was spent via G-Cloud – the government’s digital marketplace for procurement of IT systems and services. That’s less than 0.1% of spending, a staggeringly small proportion in a period of widespread cuts and on-going efficiency drives.

The fact that councils aren’t embracing G-Cloud isn’t the biggest issue here; it’s the slow adoption of the wider concept of cloud based IT as the preferred approach. As of 2013 around 30% of councils used no cloud delivered services. The 70% embracing the cloud sounds promising, but when we dig deeper this tends to be in one or two niche areas within the council, or just email, with most local authorities continuing to spend the majority of funds on traditional on premise IT and maintaining legacy systems.

There are two main reasons I’m interested in this, the first being the most obvious one of cost. Cloud services tend to be cheaper. There is no hardware on site, meaning lower initial setup and on-going maintenance costs. This makes a big difference, as today 38% of IT budgets tend to be spent on support and maintenance.  You also avoid waste. With traditional on-site hardware a large proportion of the functionality and computing power may never be used, but with the cloud you can generally pick and mix from modular options, and the hardware itself can be shared with other users.

The second and more interesting reason though is innovation; to me the cloud means progress. Cloud services can be updated quickly with improvements rolled out to users remotely. Systems aren’t installed on site and forgotten about; they can evolve and improve, with all customers benefitting from new features and functionality. A cloud-based solution encourages the provider to work with their customers to optimise for the entire user-base, and not to have to develop bespoke solutions for every client. This drives innovation and can result in significant benefits for customers, with it being far easier to embrace new approaches and best-practice. Interestingly this comes back to my original point, sharing services between local authorities, or even between the public and private sectors doesn’t just save on IT costs, it results in better, more flexible systems which lead to improved services which are both more efficient and more effective – effectively you’re spending less and getting more.

One final thought while we’re talking about sharing. What about taking it a step further? Cloud services create the opportunity to share data and insight, not just servers and IT support. It might be a bit of a leap, particularly in the public sector, but knowing more is generally a good thing, and sharing data is a good way to get there. There may be hurdles to jump, but joining up these systems and maximising the use of data within and between local authorities whether in revenues and benefits, public transport or housing might have the potential to have a far greater impact on cost savings than the current practice of reducing household or community services

By Patrick O'Neil, Head of Pre-Sales Consulting, TDX Group 

The importance of solid foundations in a vendor management strategy

With an ever-growing increase in regulatory focus on the debt industry, 2014 is becoming the year where we are all focusing on creating solid foundations for growth, supported by innovative new ways of increasing performance through data, analytics and segmentation. Through analyzing what does and does not work in an Outside Collections Agency (OCA) management strategy, we can drive wide scale benefits, not least to performance.

The foundations of such a strategy fall broadly into three categories:

• Data transfer – Is information being effectively transferred back and forth from OCAs
• Process management – Are accounts fully reconciled and not getting stuck in any processes?
• Portfolio visibility – Do you know exactly what suppliers are doing with each account?

We know that ineffective or broken collections foundations result in poor customer experience, for example: the need to re-supply information to agencies, delays in responding to queries or continued contact attempts to wrong numbers. These are exactly the customer challenges that are driving the current focus on the industry from regulators such as the Consumer Financial Protection Bureau (CFPB).

The good news is that resolving these issues will not only ensure adherence to regulatory guidelines but also drive significant collections uplifts as the customer experience is inextricably linked to performance.

In the 21^st century it is important that all industry participants have an effective data transfer mechanism to and, just as importantly, from agencies, as this ensures data accuracy. Accurate data not only prevents incorrect contact attempts, but also supports agencies in the collections process. In addition, a fast turnaround of disputes not only improves the customer experience but also drives uplifts in resultant performance on these accounts by over 40%*.

Finally, having account level visibility of supplier activity not only meets regulatory requirements around supplier monitoring but also helps to fundamentally change the performance management discussions of vendor managers.

There are many more examples which demonstrate the importance of focusing on, and improving, the basic foundations of an OCA management strategy. This importance is becoming ever increasingly critical given the onset of growing regulatory requirements in third party supplier management. But the benefits of getting this right are far wider reaching; reducing wasted resource and driving significant performance uplifts – something which I’m sure all industry participants would welcome.

 

*source TDX Group data 2014

By Chris Smith, TDX Group

TDX moves down under

With TDX celebrating its 10th birthday this year, there's a lot of opportunity to look back at the history and evolution of the company; a small business created in a barn to meet a need in an evolving market has now become an expert in the industry.

Over my two years with TDX I've seen the rise of a number of exciting projects that are changing the market's landscape – not just in the UK but also overseas. This is why I am so excited about being a part of TDX's Australian (ad)venture! Last year we launched with Telstra, our flagship Australian client, and we are currently working together to deliver some fantastic results (and we’re already in talks about how we could revitalise their portfolio again) and we’ve recently taken on our second client.

It's easy to rest on our laurels and talk about the performance and compliance benefits that are realised within the first few months of taking on a new client or a new portfolio; but for those who are looking to the future, creating a rich data asset to be mined over the coming years is what makes the real difference. This is how we provide our clients with insight into their customer base post-acquisition which can be utilised not just to boost recoveries and collections, but also to ensure that all customers receive the right treatment depending on their circumstances.

It should come as no surprise that when an individual defaults with a telco, utility or line of credit with a financial institution, other defaults soon follow, as the root cause is often financial difficulty at the customer level. Having a single view of that customer outside of a one client portfolio allows you to ensure that you control the flow of activity to that customer and enables you to make sure that they are treated fairly - protecting your brand whilst also leveraging the customer’s recent contact and income and expenditure information to make the appropriate decision.

This isn’t just relevant to the UK or the Australian market; across the globe, regulations are being tightened and net performance is being squeezed due to increased cost to collect. In this context, technology platforms are a vital asset for making collections and recoveries both cost-effective – and fair for the long-run.

Applying this forward thinking, data-driven approach is what has kept TDX ahead of the game for the past decade, and what I’m sure will lead to a positive future in the Australian market. Whilst TDX's path in Australia differs from the UK, after all the market is different - it would be remiss of us not to acknowledge that we're standing on the shoulders of giants!

By Guy Bourne, Head of Analysis, TDX Australia

Where next for debt buyers?

Over the last year, the debt purchase market in the UK has been dominated by the arrival of the large US debt buyers looking for new opportunities away from their increasingly regulated domestic market. The interesting point here is that regulation is also being stepped up in the UK, and the influx of lower cost funding into the UK market has only served to push up pricing which has further depressed IRRs for key debt buyers.

So, with the UK market, like the US, becoming increasingly competitive and more heavily regulated, debt buyers must now look to other markets to purchase assets at high IRRs. One theory behind the rapid expansion from the US to the UK is that buyers are, effectively, using the UK as a bridgehead into debt purchase in potentially more lucrative European markets.

Some of the larger UK debt buyers are already looking at the Spanish market and have started acquiring assets and, most importantly, building performance datasets. However, a more general expansion across Europe has yet to really begin. The key thing holding most debt buyers back is the lack of outcome data and liquidation curves in these new markets, which is a bit of a chicken and egg situation. It’s hard to invest without the data, but you can’t acquire data without investing and learning about the markets.

This leaves debt buyers with two choices for expansion into the European market:

• Partner with or acquire local entities who have outcome data from previous purchasers or agency activity.
• Seed a number of markets with low value (and preferably high account volume) purchases to develop datasets for a ramp up of purchasing in the future.

It will be interesting to see how the different purchasers approach the European expansion challenge over the next 12 months. I think the really interesting feature in all this is that whilst some European markets are attractive, it is the emerging markets on a more global scale that really offer the best long-term strategic opportunities. Debt sale as a tool is increasingly prevalent outside of the developed markets and without significant external competition, local purchasers are being created to meet demand.

The opportunity for significant global growth is there for debt buyers, but it will require much more than just a Eurocentric vision.

 

By Stuart Bungay, Managing Director - International Expansion, TDX Group.

Avoiding the pothole

Information Security and Data Protection can be dry subjects; it’s not uncommon to see someone rolling their eyes when they crop up as they can be perceived as blockers towards innovation. Security specialists have historically been seen as ‘no’ people but, honestly, we’re actually people  who prefer to say, "yes, but maybe not like that”.

Information Security is much more effective when considered early and embedded into the foundations of any product or process than if it’s bolted on as an afterthought later. Effective controls can then work to enhance features and provide additional layers of protection. If a road surface is cracked or damaged it’s much more effective to the long-term solution to resurface the entire road than to patch it; one good freeze or downpour will cause potholes and inevitably the damage gets worse.

The same can be said for awareness and training. We have an obligation to the success of our business, and to our customers, to ensure all colleagues have a basic awareness of Information Security and Data Protection principles and we therefore provide computer based training for all colleagues at induction and then annually.  But, is an annual training course enough? An ongoing programme of awareness is much more likely to turn compliance into habit.

It’s also reasonable to expect that telling people they must do something won’t quite get the same level of enthusiasm as them choosing to do it.  That’s why, at TDX, we incentivised this year’s annual information security training by entering everyone who completed it by an early deadline into a prize draw, resulting in a much higher early completion rate than we could otherwise have achieved.  It’s too soon to gauge whether this approach will have a better impact on individual understanding, but we believe that if the majority of people complete it of their own volition rather than with their manager standing over them it will make a difference.

Awareness campaigns shouldn’t be about ticking a box or patching that pothole, we should be much more interested in the foundations of our business and by providing regular, consistent messages we can achieve real behavioural change and seek to embed those positive habits.

By Vicky Clayton, Information Security Officer, TDX Group

Why does Amazon know more about our customers than the collections industry?

In the current age of big data, organizations are becoming ever-increasingly sophisticated in their ability to understand and react to their customers’ needs and requirements. B2C companies like Amazon know exactly what I want to buy as soon as I log in, while Google regularly displays adverts for products similar to those I have recently been researching. Even across our industries, suppliers gain a detailed picture of my circumstances whenever I apply for credit or a utility supply. Why is it then, that as we progress customers through the billing and collections lifecycle, our understanding of a customer’s circumstances actually declines?

We all know that a critical aspect of any collections activity is building an understanding of an individual’s circumstances. This enables the optimal strategy to be deployed on the account and also informs discussions with that individual, which is of growing importance given the increased focus on ensuring the fair treatment of customers; surely this can only be achieved if we truly understand each customer’s individual requirements?

We must not forget that our industry has one huge advantage over other organizations - we actually engage in direct dialogue with our customers throughout the process. We continually have the opportunity to build a really clear picture of the individual throughout the collections process, whether that be through capturing Income & Expenditure details, understanding the root cause of financial distress or just understanding a customer’s overall ability to pay. Unfortunately this data is currently not always captured effectively, let alone shared between collector and creditor, as accounts flow through the process.

Unsurprisingly, this disjointed sharing of information can also drive a disjointed customer experience; examples of which include:

• A customer being required to complete the same I&E process multiple times with multiple agencies as accounts are recycled through the process.

• A customer communicating and agreeing a resolution relating to their short-term financial challenge, only for the account to then be passed to a new agency with no visibility of this discussion.

Building on the capture and utilization of this data, rather than placing new information in a silo and requesting the same data multiple times from the customer, can only be a positive move forward.

As our industry continues to focus on improving the customer experience, understanding the circumstances and requirements of the customers we serve is critical. We already have access to a large amount of the data required to enable this from the interactions we have with our customers. By working closer together and using existing technology creditors and agencies can share new information with each other, which will ultimately enable agencies to have more informed discussions, and truly improve the resultant customer experience. Furthermore, this will also allow creditors to improve their overall collections strategy – a win for all concerned!

  

By Chris Smith, TDX Group

How can the debt industry reduce waste?

I’ve been thinking about waste.

As you probably know, the debt collection industry largely operates on a “no win no fee” basis, meaning creditors typically pay debt collection agencies a % commission when they collect money. This results in much talk about the “cost-to-collect” - but I’m left wondering about the cost to not collect. What about the costs incurred on all those accounts which don’t pay?

The truth is that the accounts that do pay, end up paying for those that don’t.

So, how does that work?

Debt collection agencies work out how much cost they will incur in working a portfolio of accounts, for letters, outbound dial attempts, inbound calls, payment processing and so on. On top of this an agency will add their profit margin. This is then divided by the number of accounts in the portfolio to get to an agency yield per account.

The agency will then calculate the likely total amount of collections and divide this by the number of accounts to arrive at a forecasted gross cash collection per account.
Divide forecast gross cash collections per account by the agency yield per account and you get the % commission

Here’s an illustration:

Agency yield per account       Agency commission          Gross collections per acct.
Agency costs £2.80                   Agency yield £4.00               Ave. balance £350.00
Agency margin £1.20                Colls per acct. £35.00           Liquidation 10%
Total  £4.00                               Commission rate 11%          Colls per acct. £35.00

So back to waste … I’ve been wondering just how much spend is wasted on accounts which don’t pay? Wouldn’t it be valuable to reduce the work on these accounts (fewer letters or dial attempts), or reinvest those costs on accounts more likely to pay? After all, we know all about the ‘low hanging fruit’ - accounts that pay fairly easily, but what about the fruit hanging halfway up the tree that, with a little extra shaking, will liquidate too?  If we invested extra activity on those accounts, which is funded by the reduction of spend on what is basically a rotten apple, could we shake more off the tree?  I think so.

So, how do we reduce waste?

Take customer queries for example. Queries are a prime area of wastage in the collections process.  Swift resolution of simple queries is known to deliver an uplift in cash collections, but queries are expensive to manage, delay resolution and are unhelpful to the customer.  By taking a close look at the query process – finding out the root-cause of the queries or understanding why the same queries re-occur – it is often possible to reduce the number of unnecessary customer queries being raised. Fewer queries mean lower costs.

I’ve realised that reducing waste and investing those savings in more productive activities is the key to more effective collections. All activity is becoming more expensive, and in some areas arguably less effective, so we need to look at how we uplift net collections (that’s after costs have been deducted) in a more intelligent way.  I believe that means understanding even more about the customer by using the data at our fingertips.  We know that Equifax understand this notion and use propensity scoring to eliminate waste.  They take a batch of accounts, and, using the vast amount of data that they hold, can pinpoint the accounts that will bear fruit and identify the rotten apples.  When we combine this information with TDX scorecards and segmentation we can offer our agencies an even fuller picture of their customers, which allows them to better tailor their strategies to the type of customer they have.

I’m also convinced this will also lead to a better experience for the customer  - a win all round!

By Charlotte Mather, Senior Insight Consultant, TDX Group