Personal Insolvencies: 2015 represented a turning point … it’s time for another

The last two years has been a period of significant growth and change in the Individual Voluntary Arrangement and Trust Deed market. Looking back through the last decade at the drivers behind volume changes, you can’t help but see the pattern which makes it clear that now is the time for more regulatory change.

In the lead up to 2006 the UK experienced an explosion in personal insolvency volumes driven by changes in legislation and the resulting emergence of ‘factory’ type firms commoditising personal insolvencies through mass marketing and production line operational processes. Post credit crunch, volumes fell, mirroring the contraction in unsecured lending/borrowing. The intervention of the FCA in regulating debt management firms from April 2014 saw a further fall in new IVAs and in Scotland TDs. However, since that time, a gradual increase in consumer credit has created a gap in the market which, since the second half of 2015, has been filled by mono-line personal insolvency providers who, unencumbered by FCA regulation, have grown rapidly. Additionally, now that the larger debt management providers have received full FCA authorisation they can once again invest in consumer marketing.

As a result, volumes set to return to, or even exceed, levels seen prior to the credit crunch and it’s time for a step change so that consumer outcomes are protected, creditors have faith in personal insolvency debt solutions.

Over the last 12 months, we have worked with industry regulators to support them in identifying and eliminating the irregular practices we have seen building up in the industry since the second half of 2015. However, there is more to do particularly around transparency in the regulation of the market, and a cross-sector approach is critical if we are to work together to raise overall regulatory standards.
We are asking the Insolvency Service to engage with Regulators (RPBs Recognised Professional Bodies) to deliver both short and long-term change, including the implementation of a single regulator for the personal insolvency sector and the regulation of all firms (not just individual IP level).

It’s important that consumers can access high quality debt solutions including personal insolvency because personal insolvency has the potential to deliver poor consumer and creditor outcomes. However, now is the time for the industry to work together to ensure personal insolvency regulation is enhanced to meet the needs of a changing industry and to bring it in line with the FCA’s regulatory principles.

By Richard Haymes, Head of Financial Difficulties, TDX Group

This is an extract from an article included in our regular round up of news and views from the debt industry, The Debt Review. Sign up to receive a copy here: Subscribe to The Debt Review

Work in progress: how we learn

As we launch Learning week 2017 at TDX Group, I have been reflecting on what learning means to me and to TDX Group as an organisation.

 

In my job I am often asked, ‘What training can I have?’, ‘How do I know what I need?’, ‘What will TDX Group do for me?’ and ‘How much money can I spend?’.

 

I used to measure and report on how many training courses we ran and how many ‘people hours’ of training we did and that somehow would make me feel good about the amount of ‘stuff’ we were doing – our colleagues *must* be learning all of the time, right? And yes I’m sure many of them were and have been then able to use what they have learnt to progress their careers. But, if we’re honest, there are times when we have all gone along for a course, enjoyed the lunch and come back to work. Guess what? Nothing changed… but the chips were nice... and the satisfaction scores were 4.3 out of 5.

 

I have spent a lot of time thinking about how to engage people, draw them in and then send them back into the world with an appetite for change and a curiosity and thirst for knowledge and I wonder if the day of the typical training course is disappearing and we need to do things differently.

 

In other parts of our lives (and even in the way our children learn at school) we use devices to watch TED talks, or listen to podcasts, or consult the University of Google (J), taking in knowledge in short, bitesize sessions. We want information quickly and we talk to our friends and colleagues and share information. This feels like a much more natural and self-driven method of learning. And, actively making the choice about what, when and why is critical. What I have definitely learnt is that individuals really need to have the desire to learn and to drive their own development – not to ask others to do it for them. This takes time, commitment and an awful lot of self-reflection and persistence. What I’ve also learnt is that when people are prepared to share their knowledge and expertise rather than hold it as power, then others can fly. Seeing someone who shares and applies their knowledge and experience in the workplace provides the role-modelling that is needed to turn information into learning and learning into change – for an individual, and for an organisation. 

 

This is what is so amazing about TDX Group for me and this shines brightly with Learning week. So many of our colleagues have offered their time and expertise to volunteer to run sessions on a broad variety of subjects from taxation (yes… really) to Spanish and mindfulness, personal brand and project management. 

 

We have an amazing resource bank of knowledge and a team of people keen to share it.

 

So go on ... offer up your time, share your knowledge, make a difference.

 

By Jo Thorburn, HR Business Partner, TDX Group

The business cycle is very much alive

Just before the crash in 2007, we had never had it so good. The housing and stock markets were racing ahead, banks and financial institutions were falling over themselves to lend further and further into the subprime market and then the music stopped. Almost overnight the credit markets seized up and the rest is history.
Around ten years before this, the Asian financial crisis swept through East Asia decimating the emerging ’Tiger’ economies and impacting severely the developed economies in Europe and North America.

The late 80s and early 90s were characterised by a recession which was in itself preceded by the stagflation which dominated much of the 1970s.

Looking at this objectively (and despite many claims that the business cycle is dead) it is evident that we are in a cycle of boom and bust that resets itself, to varying degrees, around every ten years. So, is now the time to start preparing for the next downturn?

As we look at the economy in 2017, stock markets are back at record highs, housing markets are rallying, lending continues to rise and many of the underlying structural issues that caused the 2007 crash remain unchanged. On the public sector side, government debts are spiralling and student loans have reached record levels. To be blunt, the warning signs are everywhere and once again we find ourselves in a credit fuelled bubble that will, like all bubbles, inevitably pop. Looking back to 2007, one of the key features of the economic crisis was how quickly it unfolded; the time from the first signs of crisis to individuals queuing outside banks was remarkably short. The key lesson, therefore, is that individuals and organisations need to act before any crisis hits if they are to protect themselves from the full impact of the downturn.

Here at TDX Group, like everyone else we experienced the rollercoaster ride from the global financial crisis as it impacted and ultimately reshaped our business. Thinking back, however, the activities of one of our clients in the year leading up to the crisis seemed insightful – and perhaps gives us all a lesson or two we can learn in the current situation.

Accepting that the economy was overheated our client embarked on a strategy to prepare themselves for what they thought was inevitable. Their strategy encompassed two key elements:

1: Fix the collections and recoveries process

To ensure the process in collections and recoveries was truly fit for purpose and scalable, they invested, up-front, in this capability to ensure that when volumes did start to increase they were ready to respond. Working with TDX Group provided flexibility and optionality across collections and recoveries and ensured that there was a plan B as suppliers exited the market and volumes spiked. In comparison, too many other creditors relied on debt sale, specific purchasers or specific DCAs and were severely impacted when they were no longer able to operate post the financial crash.

2: Clear out all warehouse and legacy debt

This client also embarked on an ambitious programme with us to divest all outstanding warehouse debt that resulted in the sale of around £1-2 billion of assets. The programme was so successful that as the crisis hit at the end of 2007, non-performing loans on the balance sheet were at an all-time low almost to the extent that there were no post default accounts.

What was generally lacking in 2007 were strategies aligned to individuals’ financial circumstances.  The strict one-size-fits-all approach implemented by many creditors simply resulted in consumers ignoring their problems, triggering a further rise in defaults and personal insolvencies, and a reliance on high-cost short-term lending. 

Being able to effectively identify and verify those who are capable of paying versus those who are potentially vulnerable and / or falling into genuine financial difficulty produces a wide-range of scenarios, each one requiring a carefully considered strategy. By responding to customers fairly and appropriately, active engagement with the customer is likely to be retained and recoveries activity can be targeted accordingly. 

Hindsight truly is a wonderful thing, but I think there is logic in really looking at the economic evidence around you and, using history as a guide, being prepared for what lies ahead. I think all lenders in the markets should be thinking now about the business cycle and how they can prepare for what lies ahead, this is not a question of ‘if’, it is a question of ‘when’.

Here at TDX Group, across our range of international markets, clients are starting to approach us worried about the next downturn and asking for help to ensure they are as well equipped to manage the consequences. As we move forward with these clients, the experiences of 2007 seem to resonate and as I look at the economic picture around us, being prepared now seems more important than ever.

By Stuart Bungay, Director of Product and Marketing, TDX Group

Beware the headlines: are pensioners really better off? (The perils of thinking you can ever know enough)

Last month there were some interesting reports about the state of the finances of those in retirement. On the face of it, they looked contradictory.

One Monday in February, working families learned that in spite of their hard graft to make ends meet, those in retirement were better off than they were: “Pensioner households are now £20 a week better off than working age households, but were £70 a week worse off in 2001.”

On the same day, the BBC’s deconstruction of this same report highlighted that pensioners are better off *only* when you have accounted for housing costs. It went some way to making the headlines more palatable; it makes perfect sense that those who are of working age have high housing costs so in net terms are not doing quite so well as those who, having grafted for so long, now have low (or no) housing costs.

But, by Friday of the same week, we learned the burden of debt (debt which, surely, will just never get paid off) is growing for those in old age: “One in four people planning to retire this year will still have a mortgage or other debts to pay off and will typically owe about £24,000.”

 

Looking at the data we hold at TDX Group on the demographics of those entering personal insolvency (those in the most desperate financial troubles) I found out:

More pensioners are finding themselves in financial difficulty.
Since 2010, pensioners have continued to only be a small proportion of those entering personal insolvency – but it has doubled from 3% in 2010 to 6% in 2016. I’m no statistician – but that feels significant to me.

Pensioners’ income isn’t growing – they are just exposed to less economic volatility than those of working age.
Looking at the income levels of this same group – it’s not that their income has outstripped those in work – it’s just dropped less. For those pensioners entering personal insolvency compared to those who are in work – their income has been relatively static, dropping by c£50 (3.4%) from 2010 to 2016, compared to a drop of c£300 (13.4%)  in those under the age of retirement.

 

Pensioners in financial difficulty owe more than those of working age.

Pensioners entering insolvency have more unsecured debt than those of working age – and the difference is growing. In 2014  and 2015, there was only about £1000 difference between the amount owed by these two groups; in 2016 it was £5000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

And I’m sure that if you dig into another layer of data and information you could come up with another set of statements that could be just as complementary or contradictory.

 

Looking at all the headlines and our own data at TDX Group, I’m left with two overriding feelings. Firstly, it feels wrong that pensioners (who have fewer options to get themselves out of financial difficulty than those of us of working age) are increasingly finding themselves struggling with debt. Then, thinking more broadly, my overall conclusion is that it just goes to show how careful you have to be to understand someone’s financial circumstances in the round. Getting this holistic view has been a perennial problem for our industry and one that we just haven’t cracked yet. In theory, this is overcome by gathering Income and Expenditure information – but because I&Es are conducted and held by individual companies, as a process it can be repetitive and painful for consumers. And at what point does all this information get pieced back together so those of us involved in this industry can take responsibility for proactive responsible customer management, taking supportive action before individuals (no matter what age) run into financial difficulty so they’re not left with unmanageable debt in their old age?

 

By Kirsty Macpherson, Head of Marketing, TDX Group

Can voice recognition technology really help in the traditional world of debt collection?

Nowadays most of us are used to voice assistants, such as Apple’s Siri, Microsoft’s Cortana or Google’s Assistant in our handsets. And I doubt that many people, at least here in the UK, managed to avoid Amazon’s home solution Echo, with the integrated assistant ‘Alexa’ in the lead up to Christmas.

With these applications becoming more commonplace, many people in the tech industry are talking about voice becoming the next big user interface. The smartphone screen was the last big development before voice, arguably the tablet could be squeezed in between, but for me the concept is the same in that it’s a second portable screen.

Voice recognition is a different type of medium and has led to tech giants, such as Google and Amazon, investing heavily in research and development around voice recognition as they clearly believe in the platform’s viability.

But how could this new platform impact our industry?

You might well argue that it won’t impact our industry, after all how much did smartphones really change the way we collect overdue debt? It is true that we as an industry haven’t done much to embrace innovation in the smartphone space but it has had quite a large impact indirectly.

Without the smartphone e-collections (collections through digital means e-mails, online portals, web chat etc.) would likely have remained a much less effective channel. The smartphone brought with it constant connectivity which means consumers can be reached at times most convenient to them. It also means payments can be made anywhere.  In my opinion, without the smartphone, ‘self-serve’ portals would not be nearly as widespread as they are today.

But I digress, after all this blog is about voice and not the second screen. The truth is that the biggest benefits to collections through voice are already being implemented across the world through the use of speech/voice analytics. This technology uses software to transcribe full phone calls with ease and pick up key themes and words. It can also identify tones and trends from voices and an array of other data. Voice recognition is already helping our industry in core areas, such as compliance and call center management, and with further investment the usefulness and power of it will grow further.

The data that speech analytics provides opens up a whole new world of opportunities, enabling us to generate analysis to drive deeper customer insights, and ultimately improve performance and the customer experience. Could we find the perfect call structure? Can we leverage real-time information to prompt our agents to handle each situation more effectively? Can we recognise which agents are the best at handling certain types of calls? Can we find ways to reduce churn and improve the overall customer experience by optimising interaction? The answer is probably yes, at least to a certain degree, and the key is in the data capture this new technology facilitates.

As a data driven company, this is the part of the technology mix we feel really excited about. Speech analytics are already quite widely adopted further up in the customer lifecycle and are now starting to gain traction in our sector. Although still in its infancy, we are seeing more organisations including a number of our current suppliers adopting this new technology for the sole purpose of improving their collections operations. Compliance is the obvious first step where the technology is put to use today, but as it matures and the data is turned into insight the focus will shift towards optimising performance. This is another example of where compliance was initially seen to be a hindrance but is now helping to improve performance.

Although I believe speech analytics is the voice technology which will have the largest impact on our industry, there are a number of other ways in which voice as a platform can improve how we operate in collections, for example:

• Pre-collections: Payment reminders through new voice devices, e.g. Alexa’s calendar function reminding you that your credit card bill is due;
• Identification and Verification: Using personal voice recognition to verify someone’s identity, for example HSBC is implementing this for their telephone banking services through ‘Voice ID’;
• Artificial Calling: Leveraging voice recognition together with advances in artificial intelligence to perform collections, with the data from speech analytics providing the base for this.

Some of these solutions are currently far from reality and it remains to be seen how impactful they will really be, but I believe that voice can become a great asset helping our industry operate more efficiently and fairly for all parties. It might take some time to get there but done correctly voice could bring significant rewards to the companies who invest in this emerging technology.

Tommy Mortberg is Solution Designer at TDX Group.

2017 Predictions: What does the year ahead hold for the debt industry? TDX Group experts give their view on the themes and developments we can expect to see in the coming months.

Rising inflation squeezes disposable income

The devaluation of the pound and the fact that the new Government has signalled the end of austerity in the UK, means we should expect to see inflation creeping up in 2017. It is our view that inflation will be in the 2% to 3% range by the end of 2017 and whilst this is not high by historical standards, it does represent a significant movement when compared to the last five years.

Typically inflation impacts different consumers in different ways and won’t be evenly distributed. People living with financial difficulties or problem debt are more likely to be subject to a higher personal inflation rate than those not in debt; driven by lower incomes, higher housing costs and the rising cost of everyday expenditure like food, heating and travel.

Interest rates remain stable

If inflation does exceed 2% then eyes will quickly turn to the Monetary Policy Committee, within the Bank of England, to see whether they will react and raise interest rates. During the acrimony of the Brexit vote, some of the walls around the independence of the Bank of England began to look a little less solid and the potential for direct political involvement seemed possible.

However, it now appears that political involvement in setting the Bank of England base rate will remain indirect and it is likely to remain unchanged during 2017. This will continue to provide relief for those most indebted individuals who are especially susceptible to small movements in the base rate.

Limited real wage growth

Growth in the living wage is expected to continue towards the Government’s stated aim of £9 per hour but outside of this gradual increase, we would expect to see very little growth in UK median wage rates during 2017. The challenges thrown up by Brexit and rising import costs are likely to see UK firms focusing on cost reductions in order to remain competitive in the domestic market.

The exchange rate drop may well provide a boost for exporting firms, but whether this translates to wage growth will depend on the long-term view around the correct value of sterling. With inflation expected to grow, we anticipate that real wages will remain at current levels or marginally erode over the year. From a debt perspective, this will impact real disposable income and may well see certain groups of individuals struggling with more delinquent accounts.

Consumer spending and borrowing will begin to flatten

Against the backdrop of these macroeconomic factors and coupled with falling consumer confidence, we expect to see a decline in overall consumer spending in 2017. A “hunker down” mentality will remain in force throughout the UK and this will also have a knock-on effect for borrowing. Whilst consumer credit has been growing since the 2008 financial crisis, it is our expectation that this will begin to flatten in 2017.

Consumers with good affordability (particularly homeowners with equity) will have access to a wide range of cheap credit, but are less likely to take-on any new unsecured credit in the next 12 months and will remain focussed on paying down existing commitments. Whereas, households with lower affordability are more likely to use expensive credit products to get through the month and it is likely that where this population has access to credit they will continue to borrow.

More people struggling with bankruptcy and insolvency

There has been a significant shift in the insolvency market in 2016 and we expect this to continue into 2017. Individual Voluntary Arrangement (IVA) volumes which have been falling in recent years have suddenly started to grow as the demographic of those people utilising IVAs as a debt relief tool has changed. The average value of an IVA (in terms of total debts held) has significantly reduced and is now around 50%* of its peak average value. This decline reflects the demographic change as does the mix of creditors involved in IVA which now contains a much larger proportion of short- term, high-interest lenders.

IFRS 9 preparation and implementation for January 2018

In 2017, financial institutions will complete their preparations for the introduction of IFRS 9 (new rules on how banks and other companies that lend money should account for credit losses). This will have a fundamental impact on how lenders view their balances sheets and will trigger a range of alternative decisions around products offered, product pricing, collections and recoveries.

Under IFRS 9, financial institutions will be required to significantly raise their provisions relating to up-to-date accounts and whilst this will be the area where we see the greatest change, the knock-on effect will be most strongly felt in the non-performing loans market where creditors are expected to accelerate sale and clear non-performing loan warehouses to manage the overall provision number.

Regulatory oversight maintains momentum

We can expect regulatory oversight to continue at the rapid pace seen since the inception of the Financial Conduct Authority in 2013. The focus on fair customer treatment (specifically the most vulnerable) which is increasingly embedded across the financial services industry, will continue and this will create opportunities for those most well equipped to use data to really understand their customers’ circumstances. Evermore there will be a desire to ensure visibility of the end-to-end customer journey and continued oversight throughout the entire lifecycle.

We also expect that the changes which TDX Group has already started to introduce around Debt Collection Agency (DCA) commission structures and how we are aligning these with fair consumer outcomes will develop rapidly in 2017, as all parties realise that incentivising only on cash collected does not optimise wider outcomes for customers.

Greater demand for customer choice and creditor flexibility

This year will be interesting in relation to customer behaviour and how creditors respond to the new expectations that customers have on them. Given the continued macroeconomic turbulence expected in 2017, we are likely to see an increasing number of “new” customers entering into collections and recoveries; customers recently dubbed JAMs (Just About Managing) by the Government, who are unused to dealing with arrears and will expect a different type of engagement from their creditors. Most likely they will also want to deal with their creditors across multiple touchpoints, potentially for the same query.

Only those creditors who are fully joined up across a number communications channels (eg social media, live web chats and traditional customer service centres) will be able to effectively engage with these individuals. This capability coupled with a less dogmatic and more flexible approach to collections and recoveries will separate the best and worst performing creditors.

In summary…

…as we go into 2017, the level of economic uncertainty is probably greater than at any time since the financial crisis almost a decade ago. On 20 January 2017, Donald Trump will take office in the US in what promises to be nothing if not unpredictable. Once in office, whether he will continue his proposed policy of America First and fiscal stimulus is still unclear, but if he does it is likely to have economic consequences around the world.

Here in the UK, we have to navigate the fall-out from Brexit whilst not forgetting that the EU remains largely unstable off the back of the UK vote and ongoing budgetary and banking crises. All-in-all creating further uncertainty around the key macroeconomic indicators. In 2017, it will be these larger impact items (rather than micro industry wide triggers) that will deliver the real change across collections and recoveries, and the key focus will be to maintain flexibility around strategy and suppliers whilst also building capacity to deal with an overall increase in delinquency and default.

2017 Predictions compiled in conjunction with:

Stuart Bungay, Group Product and Marketing Director
Richard Haymes, Head of Financial Difficulties
Carlos Osorio, Director of UK Debt Recovery
Pete Parsons, Director of Third Party Government Relationships

*SOURCE: Figures based on TDX Group data from The Insolvency Exchange, December 2016.

Partner power: The way to truly optimise your debt recovery

Most large creditors, be it in financial services, energy or the public sector, use external Debt Collection Agencies (DCAs) or Business Process Outsourcers (BPOs) to collect on overdue accounts. There is nothing new about that, but what is interesting is the many different approaches and reasons a Creditor chooses to add a flexible partner into the process and how this decision can vary significantly by organisation.

Some creditors opt for third party support from as early as day one of delinquency for certain product types, whereas others have lengthy periods of internal collection activity up to day 120 and beyond, before deciding to place debt out to an external party.

Why the different approaches?

For many organisations it’s a question of resource, based on the internal capacity of the collections team or that resources may be required elsewhere. For other businesses it’s a question of risk and personally managing that customer relationship for as long as possible, in order to add value and retain control.

What are the benefits of using a partner?

When used correctly there can be significant financial benefits associated with partnering for collections, including increased levels of recovery and reduced operational expenditure. However, organisations must take care to select a partner who provides the right level of control, has the correct oversight frameworks in place to ensure that the best outcomes are being delivered for the end customer, and that risks are minimised for their business.

Technological advancements mean we live in an age where data is readily available and this data allows businesses to better understand their customer base. The unique way in which our organisation is structured, using Equifax data and TDX Group delivery capabilities, means that we know more about the relationships creditors already have with their customers and have a holistic view of their financial circumstances, so we can offer a more positive customer experience and can also provide better returns for creditors.

How does data help?

By applying analytics this data is turned into true customer insight – driving more purposeful segmentation, identifying groups of customers which can be fast-tracked to DCAs and excluding unsuitable accounts to help reduce cost and risk within your organisation.

And because we work across a wide range of industries, we can spot themes emerging and use our knowledge to devise specialist treatment paths targeted at specialist segments and drive the best performance in recoveries. For example, our data can help creditors to identify customers who are in financial difficulties, enabling them to tailor their strategy to improve the customer experience, such as signposting the person to a debt charity for appropriate advice and support. We believe that treating customers fairly not only delivers better outcomes, but can also improve performance as the customers who are unable to pay and therefore not suitable for collections activity, can be removed from that process minimising cost and removing potential brand risk.

Better insight enables companies to treat each customer in the most appropriate manner, which in turn drives increased collections, with lower risk, at lower cost and achieves an enhanced experience for customers.

So, what does the future hold?

As an industry, we need to move away from linear and rigid collections processes which define our recoveries model based on timeframe alone, into a world where a more agile approach is taken at a point where the latest information is used to drive the best-next-action.

Debt collection activity remains an important part of the consumer lending ecosystem and by partnering with the right data and technology provider, creditors can improve recovery rates whilst also retaining oversight and ensuring that the best interests of customers remain front of mind.

Matt Wallis is Solution Designer at TDX Group