While value-added has become the credit card industry buzz-word of the 1990s, collections are taking on a new role as intense competition forces issuers to squeeze dollars from every comer.
Some companies are changing the way they view collections and reaping the results.
Addressing 500 conference attendees at a recent Faulkner & Gray credit card collections conference in Phoenix with a spirited presentation, Richard F. Atkinson, senior vice president of SPS Payment Systems, said that including collections in front-end decision-making accords stability and quality of card portfolios, while increasing profits.
The third-party provider of card services in Riverwoods, Ill., operates private label card programs for Goodyear Tire and Rubber, Office Max, Staples, American Airlines and Tandy Inc., which owns Radio Shack, among others.
Standing at the podium, donning a different hat to represent each of the decision makers in credit strategy as Frank Sinatra's "My Way" played in the background, Mr. Atkinson said that traditionally, each department has been intent upon achieving its own goals.
The credit policy department tries to get the maximum approvals with the maximum credit lines, national accounts wants to please customers while the risk department worries about delinquencies, he said.
"And then I walk in and no matter what any of those people said, I make the decision."
But for the last two years at SPS, the company is using "the whole brain approach" which means including all departments in the decision making process and taking off individual hats to "wear the corporate hat," said the feisty, 58-year-old speaker.
"We believe it's time to get collections involved in credit policy," said Mr. Atkinson. The two-year-old plan is producing results.
Outstandings have grown to $739 million for the third quarter of 1994, a 20% increase over last year.
Chargeoffs are down to 4% of receivables, compared to 5.5% of two years ago, while net income jumped 24% over third quarter 1993 to $27.8 million.
Mr. Atkinson pointed out that routinely the collections department has been the most common missing piece when addressing credit policy.
"They're just off to the side waiting for the backlash of [all these] decisions," he said.
Front-end strategies are motivated by expanding the credit base. But Mr. Atkinison said, "Increased sales and profits in the short-term doesn't always equal long-term good."
As spreads decrease with rising lending rates, fees disappear, and consumers demand value, many card companies are beginning to look to the collections department as a profit center rather than a cost of doing business.
SPS, which used to be Sears Payment Systems, with 74% of its stock still owned by Dean Witter, Discover & Co., created SPARC, a Strategic Portfolio Analysis and Review Committee -- a team of managers and directors representing each area of the credit business who meet each week to discuss and decide credit-policy issues.
"Now, credit policy shares the responsibility for the impact of front-end decisions on collections and in turn, collections shares the responsibility of account acquisitions," said Mr. Atkinson.
He said that the approach works because the team is empowered, each member has an equal vote, and senior managers and directors, who create policy, are involved.
"Leave your ego at the door is an unwritten rule of the SPARC committee."
Even so, Mr. Atkinson said, "It's tough. The team still struggles on occasion."
He added, "Sometimes members have to be reminded to take off their individual hat and put on the corporate hat."