Will Debt Management Plans continue to fail consumers in 2013?

Much fanfare has surrounded the new debt management protocol especially how it will significantly impact the position of many of the most disadvantaged debtors in the market, but could this new protocol actually have a negative impact on those most at risk?

At present, there are over 100,000 new Debt Management Plans (DMPs) created every year and with the exception of the free sector, these DMPs typically attract a fee to the debtor of around 30-35% of their repayments. Whilst most Debt Management Companies (DMCs) will quote fees in the 10-15% range, there are often minimum fee levels applied that increase the percentage significantly.

This new voluntary protocol will forbid the charging of upfront fees and will make the process more transparent for debtors which, on the face of it, should be good for the sector.

Our challenge as an industry, is that the code is voluntary. We know that competition amongst the key DMCs tends to be played out on the online forums, Google and generic online advertising. Unfortunately for the debtor, over the last three years competition has increased the price for some keywords on Google Adwords to unsustainable levels. So DMCs have sought to recoup this through greater upfront fees and attaching other products around DMPs to retrieve a greater slice of the repayment.

For those DMCs who volunteer for the new code of practice, there will be a significant issue around generating new leads. They are likely to be comprehensively ‘out-marketed’ by those providers who do not volunteer for the code, and will therefore be able to charge upfront fees and afford the best advertising slots. In short, the larger, more reputable DMCs will be out-promoted by those providers who do not sign up to the protocol, potentially making things worse for the consumer.. As a result there is a view that non-protocol compliant DMCs may acquire new accounts in a non-compliant fashion only to ultimately sell their portfolio or business to the compliant operators once the accounts have matured and up front fees paid.

Given this it is not surprising that the free sector has not endorsed the protocol and remains focused on providing quality debt management services for individuals in genuine need of impartial debt advice.

One final major underlying issue is that the current DMP product serves many different types of debtors (from token payers to short term rehabilitators), with many different needs, and, as a result will continue to fail most of people who take them up.

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

When things go wrong: debt collection practices hit the headlines again

Last week, following its year-long review of the payday lending sector, the OFT announced it is giving the leading 50 payday lenders, accounting for 90 per cent of the payday market, 12 weeks to change their business practices or risk losing their licences. While much of the report (which makes for salutary reading) is concerned with lending practices, one of the key areas of concern highlighted was the use of  "aggressive debt collection practices" and "not treating borrowers in financial difficulty with forbearance".

It would be easy to dismiss this as a problem associated with this niche of the lending market only, but it can be seen as pertinent to our entire industry. In its report, the OFT acknowledges that the complaints relating to debt collection practices only related to a small minority of firms - yet they accounted for a significant share of the market. Regardless of market share, it is clear the poor practices of a few can impact the reputation an entire industry.

The majority of businesses in this industry would never knowingly have poor or unfair practices and policies, but it remains feasible that insensitive treatment could occur in error because information still doesn’t flow effectively within and between creditors, debt collection agencies and debt puchasers. Even if you have the best front-line practices you cannot guarantee fairness if you do not have the full information about every interaction with your customer (what conversations have taken place already? Are other agencies involved? Why is the individual in debt?). Today, the technology is available to facilitate this flow, ending unnecessary recycling of accounts and enabling informed and effective contact.

Economic Secretary to the Treasury, Sajid Javid commented in reference to the new powers and agenda of the FCA that, "bad practice will have no place in the consumer credit marketplace." I think it's safe to say that means credit in its fullest sense: collections as well as lending. We, as an industry, are being held to higher principles of fair treatment than ever before so it’s time to take a proactive approach and take control.

The bottom line is, not only are bad collection practices unfair and unnecessary, they are also inefficient and costly.

By Kirsty Macpherson, TDX Group

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.