Though a Web site may not be the most obvious tool for collecting on delinquent loans, the idea of persuading past-due borrowers to go online is gaining traction among lenders.
Bank of America Corp. has tried it out and is touting the results. JPMorgan Chase & Co. is testing the waters, and at a Las Vegas conference on credit and collections last week, the panel on Web-based collecting drew the biggest crowd.
Users say collection sites, which are designed to offer the same options as offline channels, provide advantages for consumers and creditors alike. For the creditor, the costs of paying collectors, sending mail, and processing payments can be reduced. And proponents of the technology say avoiding the embarrassment of having to discuss their situation on the phone makes some customers more likely to repay.
Credit professionals say the rub is getting a delinquent borrower to visit a site. And some proponents of Web-based collecting say it works best with early-stage delinquencies - loans 30 days or fewer past due - which involve fewer disputes and less negotiation than longer-term delinquencies.
According to the Chicago credit bureau TransUnion LLC, collecting an overdue payment over the phone costs roughly $15, while collecting a payment with its Web-based program costs $1 to $3.
Bank of America is using a customized version of TransUnion's Web-based collection program. Tom Butler, a senior vice president at B of A, said it has "evidence of an increase in collection rates" and has reduced its collection costs as a result of its collection Web site.
The Charlotte company, which began pilot testing the technology for credit card debt in August 2001, processed $150 million in online collection payments last year, Mr. Butler said. The collection site, which was rolled out to most of B of A's consumer operations in 2002, gets about 24,000 hits in an average month, he said.
Online Resources Corp. says it has designed an online collection program for several banking companies, including a top three card issuer (which it would not name). It estimates that the program can yield at least $1 million of benefits a year for a $1 billion card portfolio. The benefits are measured by increased collection rates and reduced operational costs.
Bill Kinnelly, the chief marketing officer for Online Resources, of Chantilly, Va., said that for early-stage delinquencies, over half of the customers who log on to its collection sites take one of the options for repaying some of the debt. As a result, users' collection rates rise by 20 basis points.
Twenty-five percent of customers with late-stage delinquencies who visit the sites settle some of their debt online, and those settlements have been at least as large as those made offline, he said.
Chris Imrey, the president of Apollo Enterprise Solutions LLC of Irvine, Calif., said users of its online technology can save 40% to 60% through increased collections and reduced expenses.
Promoters of the technology also cite psychological factors.
"There's the embarrassment factor" in debt repayment, said Michael Browning, the chief executive of TransUnion's Douglas-Danielle Inc. division. "People would rather go online and deal with it on their terms than deal with a live operator."
TransUnion's program has consistently shown "good increases" in collection rates, Mr. Browning said.
Mr. Kinnelly said that Web-based collecting is "nonconfrontational and includes scheduling convenience."
The Online Resources sites offer access to a repayment system 24 hours a day, seven days a week, and the technology makes it easier to communicate with borrowers who have moved or do not have landline phones, he said. According to Online Resources, 22% of its site users log on outside normal business hours.
Mr. Browning said TransUnion customers can use its program for everything from making a payment, to negotiating new terms, to submitting disputes.
Mr. Kinnelly said the Internet brings a "financial advisory" component to the collection process, including credit counseling information and links to educational sites. "You can communicate more information online than you can during a confrontational conversation - especially with an agent [who] is paid on commission."
Mr. Butler at B of A said banks and other lenders can also use the technology to cross-sell products and to update phone numbers and other contact information.
"For customers that do make an online payment, we try to expose them [to other services] and offer them the option to link over to bankofamerica.com," he said.
Generally, online collections are initiated by notifying a borrower of a company's online collection option, either through the mail or over the phone. For banks, a collections Web site can be a natural extension of an online banking site.
Currently, 53 million adults - roughly one-fourth of the U.S. adult population - use online banking, according to the Pew Internet and American Life Project.
B of A and JPMorgan Chase ran analytics to gauge which of its customers would be the most responsive to the technology.
"You have to go deep into the transactional behavior of each customer, and understand what they did on the site," Tom Brown, a senior vice president at JPMorgan Chase's Card Services division, said at last week's conference, which was organized by Source Media, the publisher of American Banker.
"If you changed their behavior … then you have some value out of the site," he said.
Mr. Butler said borrowers who use B of A's collection site are generally "lower risk" and young and tend not to have a history of late-stage delinquency.
Apollo's Mr. Imrey disagreed with the notion that Internet collections are effective only with moderately delinquent accounts.
"The later the debt gets, the less the debtor wants to interact with the collector," he said. "Our product works at all stages of the process."
Mr. Butler said that even though B of A uses the technology for borrowers in all stages of delinquency, it tends to focus its online collection efforts on early-stage debt. "It is within the early stages that you have a lot of low-risk customers," he said.
