Debtor-centricity?

It is a strange feeling writing a note for an unspecified audience to be read at their leisure with no guarantee of a response or feedback, but let’s assume for a moment that you’ve found your way here because you are interested in and informed about the debt industry. Of course, you’ve already proven that you are one of the more discerning readers by making it here at all!

But, allow me to pose a question. How debtor-centric are you?

Now, you’re probably wondering what that might mean, so here are few other questions I might ask to help:

• Are you able to maintain full visibility of activity and performance for each customer, even when they are placed with third parties or when the debt is sold?
• Do your strategies take into account everything you know about your customers and your interactions with them?
• Do you have a broader understanding of each customer and their situation and can you use it to tailor your contact strategies with them?

Don’t worry if you’ve said no to some of these, you’re in good company.

I’m currently spending a lot of my time thinking about how we can help the industry to become more debtor-centric. We enjoy a unique position in the middle of the industry so we get to see what is going on with a 360 degree viewpoint. From this viewpoint, we think there is a lot to be gained from a more debtor-centric approach which, as you may have seen in our trade press, is the theme of our latest advertising campaign.

From my perspective, a debtor-centric approach means that you use all the available data to come up with a solution that is designed to address the debtor’s specific situation and circumstances. It means that you remember every interaction with every customer and use it to inform the next one. It means you manage the individual as an individual rather than a debt.

The outcome from being more debtor-centric should be better compliance, better customer experience and in the long run, better financial performance. After all, there is no debtor out there who wants to pay their debts who enjoys being contacted repeatedly by phone or letter!

So back to my questions – in my most recent conversations with creditors, they have all highlighted some consistent challenges. Universally they talked about how the regulatory agenda required them to capture more information and manage third parties in a more integrated way. Universally they talked about how they would like to use more data in their models to better understand their customers. Universally they felt their current systems were a constraint, not an enabler and that they didn’t always have the information about historical contacts or questions raised by their customers when contacted.

These creditors were not in the UK, they were in the US – so this challenge is also being faced in the most sophisticated market in the world. 

Although it is comforting that the US has not yet figured out the answer, it means we need to continue to work hard to find the solution. As we work with our clients and the industry, we will continue to work to solve the challenges of joining things up for debtors across their entire debt position in a way that allows a more debtor-centric approach whilst satisfying creditors and regulators. We believe it is the right thing to do and we believe that if we get it right then everyone can win.

By Mark Sanders, CEO, TDX Group

The E-future Part One: Am I a Number?

Fans of the late sixties cult classic series The Prisoner will recall the central theme around people being assigned numbers rather than names. Science fiction? Ask yourself, are you a number? You may not think so, but stop and think about it again. Your mobile phone number is in fact your global identification number - a single unique number by which anyone on the planet can identify and, of course, contact you.

It's pretty obvious but hadn't occurred to me until I had the pleasure to listen to a presentation by Roy Vella, the respected mobile financial services expert (sometimes even referred to as 'mobile evangelist') speaking at the Future of Retail Banking Conference in November 2012. He suggested the world now has more mobile phones than tooth brushes, with populations in developing nations viewing the mobile phone as a subsistence item not a discretionary one.

SMS, email messages and soon payments will all be linked by this one unique number. Already the UK banking industry - encouraged by the Payments Council - is setting up a database which can link all bank accounts to their owners' mobile phone numbers. Heavily advertised recently, Barclays' Pingit service is one of the first to enable one individual to send a payment to another simply by using a mobile phone number.

What does this mean for the debt industry? The boom in mobile commerce is already starting to impact the way the industry communicates and interacts with debtors. Creditors and debt collection agencies are waking up to both the challenges and opportunities this presents. Look around and you'll see everyone around you glued to their mobile device, increasingly using mobile internet rather than actually speaking to someone. The biggest challenge facing our industry is to embrace this trend whilst at the same time ensuring the interaction is personalised, friendly and human.

We may be a number, but we don't want to be treated as one.

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

Last in line? Getting collections technology investment to the front of the queue

How often does it seem that investment in technology and innovation for Collection and Recoveries is at the back of the queue? Even when there is a persuasive financial case, scarce IT resources are often applied to more high profile parts of the business. Where there is a clear consumer benefit or regulatory need, technology investments can sometimes sneak up the queue, but too often they are over looked. Yet  there are still gross inefficiencies and duplications in the 'silo' way we work in this industry and we owe it to our businesses – and to the debtor – to release them.
  
The good news is that new business models can help and are more cost effective than you might think. The provision of platforms as a service (PAAS) technology dramatically reduces that up-front capital investment and in certain instances it is not even required. The Financial Times recently estimated that the cost of PAAS is around one tenth of the traditional alternative. There are a number of credible niche service providers – just like TDX Group – who focus on offering cost effective solutions for specific needs. This allows investments in technology and data to be leveraged across a number of industry participants reducing the cost of entry for everyone. Who would now invest in a SMS engine, for instance, when they can source the service at pennies per message?  

We, as an industry, need to get better at seeking expert support and, critically, at passing data securely between service providers. While data security has to be paramount, we can’t paralyse our businesses by restricting data flow. We need to work with legal teams and IT security experts to find ways to facilitate our industry’s future.

By changing the approach to investing in our industry’s future, performance and the debtor experience can be radically improved.

By Andrea Davis, Managing Director, TDX Industry Solutions

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

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.

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 fiancé’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.

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.