Tuesday, 1 April 2014

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

Tuesday, 25 March 2014

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

Thursday, 20 March 2014

Embracing regulatory change – and reaping the performance benefits

The past year has seen regulators place their focus firmly on the debt collection industry, specifically on the latter stages of the collection process involving third party suppliers such as collection agencies and debt buyers. It is clear that this part of the process faces greater challenges as a result of the added complexity from having multiple parties involved in collections activity, and the inevitable reduction in control from the utilization of third parties. This is best evidenced through the five-fold increase in consumer complaints originating from third party activity, rather than internal collections, - this identifies the key reason for the interest from regulators.

The industry’s reactive approach towards regulatory change has resulted in a lack of preparation, driving creditors to make performance-damaging decisions. An example of this includes wide-scale reductions in the sizes of agency and buyer panels, even, in some cases, to the extent of a total withdrawal from the market. These behaviors come at a heavy cost; in some cases driving a reduction in collections of over 35% which is unlikely to be sustainable.

However, this trade-off between regulatory adherence and collections’ performance does not have to be a key theme for the industry. As a positive customer experience is inextricably linked to underlying collections’ performance; then regulatory adherence can be utilized to drive collections’ uplifts.

One of the key requirements identified through a variety of regulatory publications, including the OCC’s best practice guidelines for debt sale, focuses upon the need for ongoing monitoring of suppliers. A robust, systematic monitoring solution will immediately identify any compliance breaches by suppliers which can then be effectively managed and mitigated. Furthermore, this monitoring can immediately identify any process exceptions which impact collections, and the subsequent increased visibility can be utilized to align the suppliers’ collection strategies to the wider collections process, i.e. why re-call an account that has just promised to pay.

Another key focus of the regulatory guidelines focuses upon the response to customers’ queries and disputes. Implementing an efficient process and systems to timely respond to queries and disputes will reduce response times, which clearly improves the customer experience. Less well recognized are the performance benefits that this improvement drives; reducing query response times from 21 days to 3 days drives a staggering 40% uplift in resultant collections from these queried accounts.

Our view is that over the next 12 months leaders across the industry will start to realize this vision of improving both compliance and performance, achieved through implementing a pro-active approach towards changing regulation. Companies which do  not just ensure adherence to regulatory requirements, but place their customers’ interests at the center of their third party collections processes and strategies will benefit most, whereas those creditors who continue to simply react to the market will continue to trade off performance against compliance.

Those companies that apply a proactive approach and accept that regulation is changing, will not only demonstrate best practices in regulatory adherence, but also drive significant improvements in their collections’ performance.

By Chris Smith, TDX Group

Tuesday, 4 March 2014

Are your KPIs measuring the right things?

I recently watched Moneyball, a film based on the real life story of the Oakland As baseball team, who in 2002 were struggling to compete with larger, and richer, baseball teams like the New York Yankees. In order to level the playing field, whilst not obliterating their comparatively small budget for building a team, they focused on statistics, utilising analysis to identify the figures which best predicted a winning team. Rather than focusing on a handful of ‘Major Stars’, they built a team of ‘average’ players, with consistent performance results. This approach enabled them to reach the playoffs for the famous World Series. 

By understanding the Key Performance Indicators for your business you can become more competitive and more confident in your capabilities. The first step of understanding your KPIs is making sure they are set up correctly. Even if your KPIs are established, there is room for reviewing and refreshing them as your business changes.

1. Ensure your KPIs remain aligned to strategy – This may sound straightforward, but is easier said than done. As a company grows the strategy may shift from, for example, pure cash collections towards reducing complaints. However, in our experience, this may be an area your KPIs are missing, as getting a true view of compliance and complaints is often a difficult process and very rarely reported through standardised KPIs.

2. Reflect Business as Usual operations – KPIs are an essential method for monitoring your day- to-day-business. For example, a call centre operation has its Service Level Agreements (SLAs) to meet, but having the KPIs that drive them, e.g. average handling time, peak/off peak answer times etc., will enable you to not only manage SLAs effectively, but make them work for you and drive performance.

3. Measure the right things – Not everything is easy to measure, but everything is measurable. It’s not practical to measure every possible factor of your business, but it is negligent to not measure something that is important to your business. For example, if your current KPIs tell you how long an agent is on a call for, but your focus is currently on customer satisfaction, have you set up a method by which customers can air their praise, or grievances?

Just like the Oakland As and their stats approach to winning baseball games, KPIs are the key details you need to find the winning formula. They enable you to play the averages on the core business, rather than relying on the occasional star performance to save the day.

So, are your KPIs really telling you everything you need to know?

By Stephen Hallam , Consultant at TDX Group

Tuesday, 18 February 2014

A summary of TDX Group’s response to the CFPB’s ANPR

Like most of the industry, TDX has recently been reviewing the CFPB’s Advanced Notice of Proposed Rulemaking  (ANPR) and collating our thoughts to help the industry provide a rounded response to the questions laid out by the regulator. Going through this process provided us with a great platform to consolidate our thoughts on a number of the key issues currently faced by the debt industry.

One of the interesting questions repeatedly raised throughout the ANPR is the impact that regulatory changes will have on the industry, both in terms of cost and collections’ performance. In other markets increased regulation can have a detrimental impact on underlying performance; our view is that this is not the case across the debt industry as customer experience is inextricably linked to collections’ performance. By targeting industry inefficiencies the CFPB is not only driving creditors to improve their customer experience but is also helping them to enhance their collections’ strategies and, as such, improve collections.

A number of the challenges faced by the debt industry with regards to the management of third party suppliers, such as collection agencies and debt buyers, can be linked back to two underlying root causes; inefficient systems and lack of overall visibility.

The first fundamental challenge when managing third party vendors is a lack of account level visibility while accounts are being managed externally. There may be little value in clarifying precisely what activity is allowed (by either creditors or regulators) if exceptions to these regulations are not immediately and robustly identified, managed and mitigated. Once this level of visibility is achieved, through either systematic or sampled audit activity, then the guidelines currently in place, around areas such as excessive calling, should not require further definition, as creditors can develop and manage against their own internal policies.

Secondly, challenges relating to information transfer of data, media and information are often rooted in systems utilized to manage third party interactions which are not designed to manage this process. This places constraints or delays on the transfer of information, furthermore, the manual workarounds often put in place often increase the likelihood of errors; both of which can impact the resultant customer experience.

It is clear that 2013 saw the debt industry passing an inflexion point with regards to its priorities; a shift away from performance and firmly towards adherence to regulatory requirements, there is, however, further room for the market to progress. Based upon our experiences across the globe, we see that markets which focus upon the principles of the fair treatment of consumers, and not just on meeting regulatory requirements, are those which drive optimal behaviors. The challenge currently faced by the US debt market is how to move away from merely satisfying the changing regulations, towards driving best practices which ensure the optimal treatment of customers, which will, in turn, drive improved performance.

By John Telford, CEO North America, TDX Group

Friday, 14 February 2014

Transforming data into information?

Data, big, small, local, global, no matter its form, is one of the most sought after assets in modern business. There is an assumption that data is the be-all and end-all when it comes to knowing about your field, but data on its own is limited, whereas information can be invaluable.

Former US President Theodore Roosevelt has more quotes and facts attributed to him than almost any other political figure in history, but one thing I find fascinating about him was his constant quest for information and knowledge. It is said that he would read a book with breakfast and at least two more before he went to bed. Not everyone can boast similar speed reading skills, but what was even more impressive is how he managed to focus his concentration and retain such vast pieces of information.  As one biographer wrote, “his occupation for the moment was to the exclusion of everything else; if he were reading, the house might fall about his head, he could not be diverted.” Roosevelt was notably able to apply what he read to his thought process and problem solving - from the autobiographies of his mentors and historical accounts, all the way to poetry and Greek mythology, he was convinced everything he read had something valuable to teach him about life.

But how does it affect what we do day-in day-out? As a consultant I have come across both sides of the coin such as companies with limited data who have assimilated it into as much actual information as they can, and continue to focus and dedicate their analytics to find new ways of understanding their data asset.  Conversely, I have seen companies who have mountains of data, but have never stopped to turn it into information. You may guess correctly that the company with lots of information from limited data often performs better than the company which has masses of data but limited information. I believe the difference is what Teddy Roosevelt called ‘concentration’, or, in our world, analysis.

Analysis should be focused on turning data into information, sometimes it may mean following an avenue that doesn’t lead to an immediate result, but the process of getting there can glean useful insight and enhance an analyst’s understanding for future projects. We often see analytical resource deployed to ensure that the business continues to run smoothly, or to find a work-around in a crisis. Whilst this is unavoidable to an extent, a conscious effort should be made to allow analysts time for research and development and not just use them to firefight or continuously maintain systems.  

We know this because as consultants at TDX we are in a unique position of being able to step back from the day-to-day business on behalf of our clients, and to concentrate solely on a particular area of the business or a unique set of data. We are able to apply the information we have gained from previous engagements to deliver solutions that may not have been considered previously, particularly by an in-house team. Because of this position, we can see that companies who truly excel at turning data into information make the effort to give their analysts this time for ‘reading’ and creative thinking. We’re fortunate - as consultants we have the luxury of this every day.

By Stephen Hallam, Consultant, TDX Advisory Services

Wednesday, 5 February 2014

The changing landscape of supplier audits – policy and process audits alone are no longer acceptable

One of the key outputs of the US debt industry focus on compliance and regulatory adherence is the increased rigor around policy and process audits conducted on suppliers such as collection agencies and debt buyers. In the current regulatory landscape, however, creditors need to question whether this approach is enough to satisfy regulators who have been doling out fines, not because of a lack of monitoring of the policies and processes, but as a result of suppliers not adhering to these policies and processes. As such, we believe that the audit landscape will change significantly over the coming year, examples of which will include:

• Supplier audits will not only ensure that policies and processes exist, but will also focus on validating that they are adhered to.
• Creditors will use systemized solutions to provide greater visibility of their suppliers which will become critical in executing the above audit activity.

A commonly accepted phrase across the industry highlights how “a fundamental objective of the CFPB is for the industry to self-identify, manage and mitigate UDAAP or other regulatory breaches”. This illustrates that the aim of the CFPB is for the industry to identify and resolve issues on its own, rather than awaiting a raft of complaints from consumers to the regulators. To achieve this, creditors need to ensure that the agreed policies and processes are being adhered to, through either sampled account level auditing or the utilization of systematic tools.

The fundamental concept behind account level auditing is to monitor the activity completed on accounts; this can be conducted through reviewing accounts on the vendors’ systems or even through mystery shopper activity. These techniques are critical to ensuring that both pre-agreed strategies are being executed and to identify any process flaws which damage the customer experience, e.g. delays in payment processing or the uncertified application of fees.

In the current environment the frequency of this activity needs to be increased to monthly, at minimum, to enable the identification of any process exceptions.

One key aspect of this activity is call listening which ensures that vendors are interacting with customers in a manner which aligns both to regulatory requirements, and to the creditor’s own standards. TDX Groups’ call listening activity on over 1,000 calls per month initially identifies that in excess of 5% of agency calls fail to meet regulatory guidelines with over 20% providing an insufficient customer experience. The identification of these issues, however, enables robust action plans to be put in place so that agencies can significantly reduce these numbers.

As the industry slowly moves towards robust account level auditing, those currently applying best practice regulatory adherence with respect to vendor monitoring are now applying systematic solutions. The systematic solution to account level auditing captures account level agency activity data to enable the immediate identification of any process exceptions, such as excessive or out of hours calling. Likewise, call listening activity is now moving towards systematic solutions, at its simplest using the above account level activity data to select calls to review. The latest revolution utilizes automated voice recognition software to enable creditors to “listen” into a greater proportion of calls and better identify those that require human review and potential intervention.

In summary, although the vendor auditing landscape has evolved throughout the past year, we anticipate a fundamental change in the activity conducted throughout the forthcoming year. Although the presence of policies and processes will remain of vital importance, the focus of creditors will shift towards ensuring that these policies and processes are being adhered to. Those creditors at the forefront of the industry will begin to deploy systematic solutions to satisfy the CFPB’s desire for the industry to immediately identify, manage and mitigate and breaches against industry codes such as UDAAP and TCPA.


By Chris Smith, TDX Group