Wednesday, 22 March 2017

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

Thursday, 9 March 2017

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.

Friday, 13 January 2017

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.

Thursday, 24 November 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

Thursday, 10 November 2016

Collaboration and communication: the key to crystallising customer needs

Having managed products in a range of industries from media to finance, there is one thing which I’m always asked: “How can we launch the next big industry changing product?” Which means I’m continuously on the lookout for the next game changing, industry leading innovation which will impress our customers and partners. Product managers are always under pressure to be innovative, it’s part of the job description, but the risk is that innovating for innovation’s sake often results in products that may please the developer because they use the latest technologies and the sales team because they have something new and shiny to present to potential customers, but it won’t do what all products should strive to do – solve a problem for a customer. This should lie at the heart of everything we do.

On a recent training course we were asked what we would do in the following scenario. In one hand we had one orange and in the other hand we had two demanding customers both asking for the orange immediately. This was the only orange in the world, so what could we do in this situation to satisfy both customers? My colleagues and I came up with a whole whiteboard full of options for how we could best use the orange. We could cut it in half and get them to share. We could use the seeds from the orange to grow more oranges. We could even eat the orange ourselves and pretend there was no orange to begin with! However, none of these options would result in a satisfactory outcome for the customers. In the end the answer was simple. What we needed to do was ask the customers what they wanted the orange for. This would have resulted in the first customer saying they wanted the peel of an orange to make candied orange peels and the second customer saying they wanted the juice of an orange to add to a cake recipe. In this scenario knowing the problem that these customers were trying to solve would have resulted in the single orange satisfying both of their needs. Simple!

Product management should be all about problem solving and really getting under the skin of what the needs and frustrations of our customers are (regardless of whether those customers are internal or external). All too often customers ask for a specific solution, and in order to please them we build the requested solution only to find that it doesn’t quite do what the customer really needed. Customers are experts in their business line and we are experts in ours. The best products therefore should be created collaboratively with the customer detailing the problems they are trying to solve, providing us with the full context and our teams proposing creative solutions based on industry knowledge and the right technologies and systems.

Regardless of how well we think we know our clients’ needs or because we have worked in the industry for years, nothing beats “voice of the customer”. At TDX Group, we use voice of the customer ourselves and recent developments to our TIX (The Insolvency Exchange) platform are based on feedback from clients and this has delivered improved functionality for all TIX users.

The simplest way to understand what a customer needs is by asking the right questions. This isn’t necessarily: What do you want? It can be: What is the problem you are trying to solve? How are going to use the product? Who is the end user? What are the impacts of rollout and implementation likely to be?

The key then is not just taking the customers word for it. Findings should be backed up with data so that a real benefits case can be created, with tangible metrics that can be used as measures of success, whether that’s cost saving, time saving, reduced complaint levels or improved liquidation rates.

The customer should also be taken on the product development journey by delivering the product or functionality in prioritised increments so that releases are de-risked, benefits are delivered faster and the customer can provide a continuous feedback loop.

It’s this collaboration and being really clear on what problems the product will solve which will really drive innovation and enable organisations to meet the right goals. When a customer asks what a product can do, it is the value proposition that they care about not the product features, and if we are innovating the right product for our customers’ needs we should be able to demonstrate that value proposition in an instant.

Shivani Mistry is Head of Platform Management at TDX Group

Wednesday, 2 November 2016

Asset Sale: Honing in on non-performing loans

The global asset sale market continues to grow, and within that TDX Group is already an established player in valuation and brokerage services in the unsecured market within the UK, and both the secured and unsecured markets in Spain. As a business we’re expanding this reach into a more globally focussed and structured asset sale function spanning the wider Equifax network and territories.

At a global level one of the greatest challenges, and opportunities, in this space is how to deal with Non-Performing Loans (NPL). In Europe alone, the largest banks hold approximately €1.1 trillion* of NPLs according to recent KPMG analysis.

The NPL problem is now a global one, and what to do about it is challenging Governments across the developed world. In some key countries such as the UK, Ireland and Spain they created organisations dubbed “bad banks” (UKAR, NAMA and SAREB) to manage the problem, whilst Greece and Brazil have changed entire legislative systems to allow the sale of NPLs.

The major difficulty in most countries is the experience and market structure needed to be able to execute NPL sales in a successful manner. NPLs are somewhat of an anomaly in that market conditions are different in all geographies, but that there are also some core similarities which need to be understood locally in order to succeed. At TDX Group, we’ve been operating in this space for 12 years, and have successfully executed more than one thousand transactions with a value of over $20 billion, and this experience will stand us in good stead as we now focus our efforts on a global scale.

How developed is Italy?

With the UK and Spanish markets having already developed, the race is on to find the next market which has the volume and infrastructure to support new growth. Italy has dominated the headlines recently but this market has found it difficult to develop a successful servicing model. Now that the Atlante II fund has been created (the second attempt by the Italian Government to try and bring some liquidity to the market) will this allow the market to establish some of the parameters to function or just add to the issues in an already fragmented market?

The Economist ran with a headline of “Bargain Hunt” in August which suggests that this market may need some support. One of the key areas discussed at a recent summit hosted by Banca IFIS in Venice was that of the Italian legal system and it was claimed that solely by reforming this you can add single digit percentage points to the Italian gross domestic product.

One of the essentials when working with funds and servicers is ensuring that the collections curves are genuinely achievable and the challenge with any new market is the ability to create balance between expected value from the seller and realistic returns from the buyer. The challenge in Italy will be weighing up state backed entities and their returns versus true returns for an investor.

Into Europe or an American adventure?

There has been a lot of talk about other developing markets in Europe and while there are undoubted opportunities to be had in Central and Eastern Europe a number of the markets do not have the large scale volume needed to replicate the UK or Spain. At TDX Group, we’ve taken on projects in Poland and Russia this year and looked at transaction in Greece; where the new regulatory framework for NPLs and the creation of Law 4354/2015 has enabled financial services organisations to consider wider disposal of certain assets.

Finally, another developing market for consideration around NPLs is South America, where we are already actively managing projects in Brazil, Peru, Mexico and Chile. The breadth of opportunity that exists here is very significant as the basic market for NPLs already exists, so bringing in skills and expertise from more developed markets can make a huge difference. In addition, some of the main purchasers are already active in South America (such as PRA and Encore) and we’d expect their presence along with the investment funds to accelerate the expected market growth.

The asset sale market is evolving and we are likely to see a number of exciting developments over the next 12 months – so watch this space.


Nick Ollard is Director of Global Asset Sale Services at TDX Group
 
*https://home.kpmg.com/xx/en/home/insights/2016/05/non-performing-loans-fs.html

Friday, 28 October 2016

Debt Market Integrator: Why Her Majesty’s Government decided to act on burgeoning overdue debt

Debt is always going to be an emotive and sensitive issue as many different types of people and businesses fall into debt for different reasons. The biggest area of debt in the UK is money owed to Central Government, which is estimated to exceed £25 billion (of which £5 billion to £7 billion is over 90 days old), and originates from many sources including unpaid fees, taxes, fines and loans, benefits or tax credit overpayments, and unrecovered costs from court cases.

In 2010, the UK Government announced its commitment to addressing this problem and improving debt management by setting up a Fraud, Error and Debt taskforce. The unit set out its vision and roadmap by publishing an interim report in February 2012. This was followed by a National Audit Office and Public Accounts Committee review in 2014, which confirmed that there was no integrated approach for managing debt across Government, and that too much overdue debt was being allowed to “age” leading to value erosion.

To remedy this, a public tendering process was held and a joint venture was formed between Government and TDX Group in 2015. The company, named Indesser, provides Government and the wider UK public sector with a single point of access to a wide range of debt management and collection services.

Government can now access services as a single customer, presenting a significant change from 2012 when the Government had over thirty separate contracts for managing debt. In addition, Indesser is set up as a streamlined process, with the fair treatment of individuals in debt at the heart of what it does.  Ensuring that individuals are removed from the stress of having multiple debt collection agencies and parts of Government, approaching them in different ways.

Since going live in mid-2015, Indesser is widely acknowledged to be exceeding expectations and has provided the Exchequer with greater returns than forecast in the original business case. Indesser aims to grow its UK Government services and footprint in the coming months and to use its experience and expertise to help Government’s outside of the UK to address similar challenges. A vision which is strongly supported by the Cabinet Office and the Indesser customer departments.

Sunil Shahaney is Director of Government and Public Sector at TDX Group