Expensive, Outdated Collection Methods Hamper Industry Rebound: Study

A new survey of collections and financial services executives shows that companies are being challenged by changing consumer behavior and increasing costs as they try to collect on past-due accounts - even as the economy improves. 

The 2010 Collections Trends and Challenges Study also revealed that nearly 50% of respondents make no distinction between chronically late payers and consumers who have fallen behind for the first time. Varolii Corp., an automated collections firm, commissioned the study.

More than 400 collections and financial services executives surveyed nationwide responded to questions about the challenges they face and what actions they are taking to improve performance. While the economy continues to hamper collections, other forces also are in play:

· Consumers aren’t opening their wallets as much as they used to. Consumers’ inability to pay is a top challenge to collections, according to 81% of respondents. 

· Even when consumers can afford to pay, they often don’t. Thirty-nine percent of those surveyed cite consumers’ unwillingness to pay as one of their top challenges.

· Increased costs are contributing to poor collections performance.  Twenty-five percent consider increasing collections costs to be a major barrier.  

Outdated Communication Methods Compound The Collections Challenge

When asked what strategies they were using to deal with larger volumes of delinquent accounts, nearly all respondents reported using multiple methods to reach past-due borrowers.   

· More than 70% of companies still use mail to contact delinquent account holders. While some types of lending require mail letters for past-due notices, other lenders simply haven’t considered whether to stop using it. 

· Ramping up collections staff continues to be a favored — and expensive n—tactic. One-third of companies surveyed said they are hiring more collection agents. Staffing is the largest component of contact center costs, with agent salaries comprising nearly 54% of overall operating expenses.

· No distinction is made between landline and mobile numbers. On average, 38% of phone numbers on respondents’ target lists are mobile numbers.  Seventy-three percent of companies have their agents make manual calls just as if they were calling a land line. Only 8% are using text messaging, while just 12% are leaving automated voice messages on mobile phones.

· Some companies focusing their efforts on a subset of accounts. Sixty percent of survey respondents are using account prioritization to determine which accounts to treat because they don’t have the resources to effectively contact all past-due accounts. However, by primarily focusing on high-value or high-risk accounts and ignoring others, they are potentially leaving money on the table.

Retaining First-Time Delinquent Borrowers Is A Priority, But Companies Do Little

The economic slump has created a new kind of delinquent borrower: first-time defaulters. These are borrowers who have never fallen behind before and likely will never fall behind again once they are back on their feet. 

Eventually, these borrowers will be profitable again for the companies who lend to them. However, few companies make any distinction between chronically late payers and first-time defaulters when attempting to collect a debt:

· Twenty-five percent of survey respondents do not segment their lists at all to send more personalized communications, and 30% only segment according to large pre-determined groups.

· While 57% of respondents state their organizations place a great deal of importance on retaining first-time defaulters, nearly 50% report no difference in how they treat them. Instead, first-time defaulters progress through the same early-, mid- and late-stage collection buckets as those borrowers who habitually pay late.

· Only 16% of respondents have created an entirely different collections experience for first-time defaulters 

· Thirty-six percent can’t even identify who among their delinquent borrowers have fallen behind for the first time.  

Automated Communications Emerge As Lower Cost, More Effective Alternative 

As part of their effort to combat the sheer number of delinquent accounts and contain costs, many organizations are shifting collection methods toward those that can more easily scale to match the increasing volume.
 
Forty-two percent of respondents said they are increasing their use of automated communications to reach past-due accounts and offer the option to make payments directly or speak to a collections agent. 

By contacting past-due borrowers with intelligent and personalized messages via voice, text and email, companies can collect more on past-due accounts at a lower cost, while freeing up their collections agent to work on more challenging accounts.  

"Collections organizations have been whipsawed over the last few years by skyrocketing consumer debt delinquency and plummeting resources. It’s incredibly difficult to collect on past-due balances," says Brian Moore, executive director of Collections Solutions at Varolii. "While it’s good that companies are increasing their collection budgets, they still struggle with outmoded techniques." 

Varolii Corp. helps companies collect through the use of automated communications. In any given month, companies across a wide variety of industries use Varolii to contact more than 20 million consumers, whose past-due account balances total nearly 54 billion dollars. 

The results of this survey are based on responses from more than 400 qualified collections executives, representing credit unions, mortgage servicers, utilities, auto lenders, credit card companies and commercial and retail banks. For complete survey methodology, contact Varolii.