Thursday, 29 January 2015

Card processing costs could double in 2015 for UK debt industry

For many years the European Commission has been signalling its desire to regulate ‘interchange’ – the fee paid between banks for processing card payments – which is typically passed on wrapped-up in the fees paid by the merchant who takes the payment. 

In 2013 the EU decided to cap interchange costs at 0.3% for credit cards and 0.2% for debit cards and this is now being implemented for all domestic card processing during 2015. Although this cap applies only to the rates paid between the banks, with merchants always paying an additional margin or fees on top, clearly the EU is hoping some of the reduction will be passed on to merchants. Estimates suggest this could total a £1 billion annual saving for UK merchants and as much as €10 billion across the entire EU.

This should be good news shouldn’t it? Not so fast - there are some clear winners and losers. 

Whilst credit card processing fees are expected to fall, the position with debit cards is more complicated. Debit card processing is typically a pence per transaction fee, so in response to the % cap it’s anticipated most if not all UK acquirers will switch to a predominantly %-based fee. This might be good news if you take lots of smaller payments, but not so much if you take larger payments. Roughly speaking merchants taking payments for less than £35 will pay lower fees, but transactions above £35 will pay more.

And that’s not all.

Payments taken over the telephone (classed as ‘customer not present’ or CNP) will be deemed non-secure, even when the AVS/CVV2 numbers are captured, and will be subject to an additional charge.

So, what does this mean for the UK debt industry? The debt industry’s card processing is predominantly conducted over the telephone (90%), mostly debit card (95%) and an average transaction value typically between £50-100. On that basis, it is quite possible that most UK creditors and debt collection agencies card processing costs could double.

The one small positive is when these changes are implemented merchants are likely to have the opportunity to switch providers, even if they are within an existing contract period. So my advice for merchants is to use this opportunity to shop around for the best deal and see whether some of this increase, which you can’t avoid, can at least be reduced by switching to a cheaper provider.

By Sajid Hussain, Business Development Manager, TDX Group

Friday, 23 January 2015

Should debt collection agencies certify to a security standard?

At TDX Group, we’ve chosen to certify to ISO27001 – the international standard for information security management – so clearly we believe this is a critical investment that reflects our commitment to data security. However, for smaller businesses, such as debt collection agencies, do the benefits justify the cost and operational overhead? Or, are there other options?

I guess the place I start is ‘why certify’ at all?

Data security is an ever higher priority for businesses as continual international debate on privacy and the endless list of data breaches makes customer trust increasingly difficult to maintain. So, being able to show consumers and customers that you’re subject to regular independent audits on security can earn or retain customer loyalty, set your organisation above competitors, and build trust in your brand. In short, certifying is no longer an optional extra, it’s a ‘must’ and a regular independent audit is a key part of making sure that data is being handled securely.

So assuming you do go ahead and certify, in addition to the few mandatory standards (such as PCI DSS), there are a few important considerations to weigh up when choosing your standard:

1. Global recognition
Very few of the over 1,000 existing standards are recognised (let alone valued) in the world’s biggest markets. Be wary of local or unproven standards which have a much lower impact in other markets, and always aim to utilise third parties who are accredited by a national body (such as UKAS in the UK).

2. Cost
Be sure to compare the cost of certification to the benefits that you can reasonably expect it to bring – such as reducing client audit overheads or attracting new business, as well as mitigating the risk of a data breach. Don’t forget to consider any impact on your existing processes, which may have to change to conform to your chosen standard.

3. Longevity
The rate of change in IT security is often faster than standards can be reviewed and updated. When you’re choosing a standard, you should make sure that it’s flexible in order to allow you to respond to market demands or emerging threats.

4. Scalability
All being well, your organisation will grow over time – choosing a security standard which is designed for small businesses is likely to reduce the initial workload, but may mean that your hard work in gaining certification is abandoned when you lose the ‘SME’ label.

To ISO or not to ISO?

Certifying to a security standard can be an expensive process, particularly with up-front costs such as audits and potentially consultancy support. However, once it’s in place, and with the correct marketing effort, holding a recognised and trusted certification can put your business ahead of its competitors. If adopting ISO27001 immediately is too onerous, using a lighter standard such as the UK Government’s Cyber Security Essentials is a method of reducing the short-term challenge and preparing an organisation for more in-depth and rigorous standards over time.

At TDX Group, our view is that ISO27001 as a trusted barometer for security management, and we strongly

encourage debt collection agencies to certify to this standard using a UKAS-accredited certifying body.

By David Rimmer, Head of Information Security

Monday, 15 December 2014

Compliant? Prove it.

The debt sale market in the UK is entering a new phase as sellers and purchasers all come under the regulation of the FCA. Are you ready?

There have been many regulatory changes over the years. However, the wave of change to come under the regulation of the FCA is set to be the biggest so far for our industry.

Historically, before and following a sale, there was limited interaction between seller and purchaser. The contract stated what the purchaser could and couldn’t do and it was left at that. Over time, sellers – banks in particular – have stepped up the level of oversight. It is now common for audits before and after a sale, as creditors, either for regulatory or reputational reasons, maintain some ownership of the customer post-sale.

So what impact will the FCA have on debt sale? The key difference this time is that the change affects all participants in the market. As with the FSA before them, the FCA takes a principle based approach to regulation. A result of this is that firms have some latitude in how they choose to interpret the requirements.

What is clear is that it’s not enough to have processes and systems in place – you need to evidence that they’re working. Sellers and purchasers are going to have to work even more closely both pre and post-sale to ensure that both parties can gather the evidence needed to satisfy the regulator. For the financial services sellers, this is an incremental change on top of what they have been doing historically to satisfy the Lending Code and the FSA. For others, who are now falling under FCA regulation for the first time a bigger step change will be needed.

Consistency in approach will be everything from a purchaser’s perspective – they interact with a large number of creditors so for efficiency, a market standard would make sense. For all of us who wish to see the currently buoyant debt sale market continue to thrive, our call to action to all parties in the market must be that we work together to look at how we can work collectively to create consistent, high quality information around customer journey post-sale.

By Andy Taylor, Product and Proposition Manager, Debt Sale

Tuesday, 21 October 2014

Ensuring those who can contribute, do contribute

The levels of unplanned, unwanted indebtedness in the UK are increasing. Ongoing welfare reform and continued decreases in real income for the least well-off in society means that a growing number are struggling to meet their financial commitments.

I have been reviewing data captured by TIX, our insolvency management platform which has visibility of over 90% of all personal insolvencies; it reveals that in the first quarter 2010 only 9.2% of IVA proposals were from consumers with more than 50% of their income coming from benefits and pensions. By 2014 this had more than doubled to 23.6%.*

 
As a result of this financial pressure, consumers are increasingly making tough decisions about which of their debts they can service and we are seeing a prioritisation of private debts over local government debts, due to the perception that private companies, such as banks, will pursue debts with much greater intensity. 

However, in the current climate, local authorities are also having to make their own ‘tough-decisions’ as they try to deal with on-going budget cuts. With the percentage of debt owed to government on the increase, the sooner Authorities address the challenge, the better.

Council tax

Although average in-year council tax collection rates in England are at an impressive 97.4%, the value of the unpaid 2.6% is, however, over £600million per year. The process for recovering this debt has traditionally been an almost exclusive reliance on third party Enforcement Agents (bailiffs). The effectiveness and fairness of the bailiff approach is the subject of much debate and it remains to be seen whether the recently introduced regulatory changes go anyway to address concerns. What is clear is that many of the innovative collection strategies widely adopted across the private sector are not utilised. When we benchmarked council tax collection performance, against that of the private sector, we found that 16 of the top 100 local authorities in England were potentially underperforming in terms of council tax collections when compared to the private sector ranking for their area. Within that 16, five of the top 10 largest local authorities by population had relatively poor actual in-year collections performance relative to their private-sector collections ranking.**

Service lines at a disadvantage

But what about those areas where the use of Enforcement Agents isn’t available? Our experience is that areas such as sundry debt, adult social care, and overpaid benefits are often reliant on internal legal service teams who do not have the resource to pursue all cases. As a result, in many areas, those owing money have learned to prioritise other debts over those owed to the council. Letters are often left unopened and council collectors have little re-course with those who are deliberately avoiding payment. In an environment where creditors are becoming increasingly sophisticated in the ways they compete for every pound, this leaves local authorities at a distinct disadvantage.

Three tips

The work our consultants have done with local authorities who are seeking to improve collection performance in order to meet growing budgetary pressures has found there are immediate and straight-forward improvements which can be made. Our top three tips are:

1. Agencies can unlock value - If your existing collections processes aren’t yielding results, don’t let the debt become old and unworked – think about engaging a debt collection agency, or a panel of agencies. You will have to spend some money, but there will be a net benefit.
2. Bureaux reporting is a proven deterrent - Consider providing credit reference agencies with data about your service users who owe you money. We have found that this alone deters those who can pay but are making an active decision to deprioritise your debt.
3. A full view of the service user and what they owe will transform your approach -   Individuals are often in debt to multiple service lines – a review we conduced of one council’s arrears revealed that 30% of its service users had debts across multiple revenue lines. By working together you can share knowledge and benefit from streamlined approaches. You can also make the experience of dealing with your council more positive in that service users can talk to one person or department about all of their debt.
 
 
 
Paul Fielder, Strategic Account Director, TDX Group


 
* TIX Q1 2014
** Analysis conducted by TDX Group in August 2013

Tuesday, 14 October 2014

The ‘right price’

Recently I was asked by a seller what the right price for their debt was; they wanted to know how many pence in the pound they would get. This got me thinking about how much this concept has changed over time – not only the value but also the definition of ‘right’ price. I am not going to go into the reasons that different debts are worth different prices i.e quality of origination, current debtor situation mix, how hard it has been worked to date etc., I want to comment on the ‘evolution’ of debt sale.
 
Over the years I have seen three broad definitions for ‘right’ price. Almost eight years ago when I started out in this industry, the ‘right price’ equated for what is the most I can get for my debt? This era was typified by limited data being made available to purchasers and often the debts would be window dressed for sale. High turnover of purchaser panels was common place, with buyers often being ‘stung’ on price (it still is in some of the developing markets). In this era, sellers got to a position where it was difficult to sell debt for two reasons:
  1. Purchasers no longer trusted the seller or the quality of the debt.
  2. Those purchasers that did come back offered more realistic prices, but creditor expectations were still at the old, unrealistic, prices. 
During the middle ages, ‘right price’ was the price that can be achieved for my debt on a repeatable basis. This era was typified by more data being made available to buyers so they could build confidence in their pricing. As a result, large relatively stable panels were common place with buyers coming back for more debt at similar prices. In this period purchasers evolved the most – using more and more data to enable them to price accurately, reducing their desired rate of returns as the move towards transparency reduced their risk and they invested heavily in operational capability to improve returns.
 
Right now, ‘right price’ is the price that will ensure that my customers will be treated fairly. No longer is it purely about price maximisation. As a seller who now retains responsibility for accounts sold, if you seek too high a price it could drive a whole host of activities that wouldn’t fit your wider customer-centric philosophy.
 
In summary, the industry has moved from limited data exchange, to pre-sale openness, to transparency across the whole life of the customer. Creditors now want to not only know how their customers will be treated, but want evidence to prove they are being treated fairly.
 
I am not sure that everyone’s expectation of the right price has caught up with the times. But this is where we are most definitely headed.
 
 
 
 
 
 
 
 
 
 
By Nick Georgiades, Director of Advisory Services TDX Group

Monday, 6 October 2014

Third party oversight

Recent results of LSB review of subscribers’ handling of customers in financial difficulties.

I read with interest the recently published summary findings of the Lending Standards Boards’ (LSB) review of how subscribers to The Lending Code handled customers in financial difficulties.

For those not familiar with the detail, the LSB re-ran a set of monitoring first initiated in 2013. The review focused on the extent to which subscribers and their DCAs are handling customers in financial difficulties with a focus on the policies, processes and controls in place - including areas such as staff training, incentive schemes and complaint root cause analysis. Additionally, the review also assessed subscribers’ due diligence processes when selecting a third party for contingent collections or debt purchase and the oversight processes in place.

The LSB examined the governance frameworks and processes used by a sample of nine code subscribers and either a DCA or debt purchase firm used by each of them.

The results made for interesting reading. In summary, the reviews resulted in one ‘green’ rating, six ‘amber ’ and two ‘red’ ratings for the nine organisations assessed.

The report highlighted general weaknesses in a number of the firms reviewed including the adequacy of training of agents to deal with customers in financial difficulty and the completion of affordability assessments and the questioning of customers in financial difficulty. The report indicated, however, that the factors driving the red-rated and weaker amber reports were largely in relation to ineffective oversight by the subscriber over its outsourced activity and, in one case, inadequate due diligence conducted prior to the subscriber selling debt.

I think the report is interesting for a number of reasons:
  1. At a time when there is a lot of ‘noise’ around the requirement for financial service organisations to focus on FCA readiness it is a timely reminder that the FCA is only one part of a wider regulatory/compliance regime.
  2. It supports the need for creditors to learn from their peers and to benchmark their organisation against good/best practice from across the industry.  Whilst the report is critical of certain organisations practices it also calls out a number of examples of good practices and rates one organisation ‘green’ (a potential exemplar for their peers?).
  3. Finally, with lending levels set to increase as market conditions improve, there is likely to be increased demand for both DCAs and debt purchasers to help creditors manage their debt books as they grow. 
It is clear from the report that it is critical that all creditors ‘get their houses in order’ now, particularly with regard to ensuring there is an appropriate level of oversight and due diligence of third parties.









By Charlie Horner, Lead Consultant - Debt Sale and Advisory, TDX Group

Monday, 29 September 2014

So what exactly is a Product Manager?

I’ve been at TDX Group for six years this month. I know I look older, but that’s actually over half of my post-university working life. I’ve spent most of that time working within our Debt Sale business, focused mainly on the delivery of a service to our clients and becoming a subject matter expert on debt sale.

More recently, I started a project along with various internal teams on developing our new debt sale platform, VENDO. Then I got a chance for an internal move, into our Products department to formally take ownership of VENDO along with some of our Industry Solutions products. It’s a great opportunity: a chance to apply what I’ve learned over the last six years in a different way, whilst learning some new skills.

So having become a Product Manager, I thought I should be proactive and do some independent reading on product management practices. I started by looking online and Google took me to a website which was nice and clear, concise and talked about product management with a little venn diagram. It simply described a product manager as an intersection between Business, Technology and User Experience. It recommended a book which I duly bought and downloaded onto my Kindle.
I eagerly opened the book and scanned through the contents pages. 40 chapters spread over 220 pages. None of the chapters said ‘Summary’ or ‘Top three things you need to know’ or anything like that, so I put it down and thought I’d have a read later.

To appeal to someone like me, the book needs a nice summary; something to hook me in and help me to decide I want to read it. I guess it’s too late now that I’ve bought it but of course I won’t recommend it to anyone until I’ve read it and decided if it’s any good.

So I did learn one valuable lesson about Product Management from the book. You must think about your end user. I’m fairly sure I’m not unique in my desire for the five minute summary yet the author, editors and publisher failed to consider me when they created the product. They’ve missed out on appealing to a whole group of users.

I might get round to reading the book at some point. Thankfully I have a team of experienced colleagues around me who can help me learn more about good product management. But I certainly know that a good product needs to meet the needs of a range of users and that should be central to its design.

By Andy Taylor, Product Manager - Debt Sale, TDX Group