Wednesday, 30 March 2016

Global outlook: Debt trends in the international arena

In the 12 years since the TDX Group business was formed, we have grown from being a start-up around a kitchen table to part of the global Equifax group with offices around the world. Today, TDX Group operates in Europe, Central and South America, Asia and Australia, and we have ambitions to further develop our expertise and international presence over the coming years. The International team spend a lot of time out on the road (and in the air) exploring new opportunities globally and here are some of the key market trends we’ve observed.

Debt sale and purchase
In debt sale and purchase we expect to see continued expansion into Europe from the large UK debt purchasers, which now includes both Encore and PRA. The continued contraction of the US debt sale market is forcing these large purchasers to explore new markets to acquire portfolios. Initially that was the UK, but with constrained volumes being sold and significant competition, European and emerging markets are looking increasingly attractive. As a result, I expect to see a significant growth in acquisitions amongst these players across Europe; but especially in the Netherlands, Eastern Europe and Italy. Within the Eastern European and Italian markets, it is the big US funds and institutional investors who have purchased first due to the size of the portfolios. We are now starting to see the more traditional Debt Purchasers enter the market and begin to purchase smaller portfolios or segments.

Further afield, the continued economic downturn in Brazil is changing the recoveries dynamic in that country opening up opportunities for experienced buyers to enter the market. In Brazil, especially, market entry strategy will be key to accessing what is normally a difficult market to develop. In Australia there are currently over 20 active purchasers, so we’d expect to see some consolidation in this area and the global purchasers beginning to make acquisitions in this territory.

Recoveries and debt collection
From a recoveries and debt collection agency perspective, the clear differential between the UK/US and the rest of the world is becoming increasingly apparent. The focus on governance and fair consumer treatment, whilst present in most global markets, is not the focal point for activity outside of the UK/US. That said, there are creditors and collection agencies in global markets watching the regulatory driven change closely to understand how the focus on fair consumer treatment can improve overall performance as well as offering better solutions for their customers.

High level themes over the last 12 months:
• Debt Collection Agencies (DCAs) are being retained by creditors’ procurement teams looking for low cost, not maximised net liquidation. As a result creditors are tending to underpay agencies and then get disappointed with results.
• Defaulted/disconnected debts are treated as homogenous blocks. As a result, creditors all too frequently randomly allocate accounts to DCAs.
• DCAs are beginning to embrace digital strategies (largely driven by the first bullet).
• DCAs are increasingly using external data to improve contact rates.
• Creditors are still not utilising all their internal data in recoveries to inform agency strategy.
• DCAs need to better understand their specific specialism and use it to their advantage.

The future in this space will be dominated by the creditors appetite to invest in agency performance (from a commission cost and time perspective) versus simply selling the debts to third parties who are prepared to invest to access the performance reward. The more agency commissions are driven down, the further performance will decline which will ultimately make sale an increasingly attractive (although perhaps not value maximising) option for creditors.

Stuart Bungay is Managing Director of International Expansion at TDX Group.

Wednesday, 2 March 2016

How rewarding DCAs differently could help us achieve the best outcomes for customers

At TDX Group our vision is to “make the debt industry work better for everyone” and when we say “everyone”, we mean it.  In the Third Party Commercial team this means that remuneration, rewards and incentives should be aligned with achieving a resolution for the consumer and the client, but that’s not where it ends. We want commercials that reward our agencies for the excellent work that they do too!

Personally, I don’t believe the current commercial model entirely supports that vision, mainly because the outcome measured by the payment by results mechanism is biased towards cash collected.  This is standard across the collections industry but the tide is changing.  Not only are we seeing an increase in outcomes that are right and fair, and don’t necessarily result in payment – such as identifying vulnerability – but these also lead to increased workload for which agencies are not directly rewarded, which is why change is needed.

Clients and agencies alike are interested in measuring other outcomes and agree that there needs to be commercials in place to support this.  However, alternative commercial models seem complex and risky, so how do we move from a commission-only model to one which ensures that the consumer has a resolution to their debt problem, rewards agencies for achieving fair outcomes, and provides the client with the remuneration for services/goods provided?

I think the answer lies in getting smarter upstream with data, and that’s where TDX Group comes in. We are currently working on new style segmentation using Equifax data which will enable us to identify segments of debt where the right outcome may not be collecting cash.  This is where we will select the right commercials based on the work involved and the outcome desired.  But what about where the objective is still to secure payment in a fair manner?

This is where payment by results still works, but we need to take the emphasis off cash as the only result which is rewarded.  The “result” can be a multitude of positive outcomes which lead to a resolution of the debt.  I think this is where a scorecard approach to commercials works particularly well.  The payment element is aligned to ensure that agencies are incentivised for providing fair outcomes and better consumer treatment.  I also like that we are able to define what a good outcome looks like, and reward this appropriately.

At TDX Group, we’re working on a commercial scorecard which ensures that consumers get a resolution to their debt in a fair way, and even when that doesn’t mean paying the debt, agencies are rewarded for the part they play in the resolution.  All it means is that the process of resolving debt becomes fairer for all and TDX Group can continue our journey to “make the debt industry work better for everyone”.

Charlotte Mather is Head of Third Party Commercial at TDX Group