PHOENIX -- Chargeoffs have dropped by more than half since American Express Co. restructured its collections department, said Vijay Parekh, senior vice president, at a collections conference here.
In his keynote address at Faulkner & Gray's Credit Card Collections conference last week, Mr. Parekh compared current chargeoffs to 1991's high, when they totaled 12% of Optima's receivables.
About 25% of 1993 profits came from the collections department, he added, while collection costs dropped 20%.
"Collections have been an integral part of what we've been achieving," he said, attributing the collections success to a new mindset at the company.
Mr. Parekh blamed the initial failure of the Optima revolving card on four key factors. "We grew too fast," he said. "We undertook marginal and risky loans. Time was not with us. The economy went sour, and we didn't have the proper lending infrastructure to run lending business."
In a "journey of reengineering," Mr. Parekh said, American Express looked at the "key levers of the lending business," which included collections and collection agencies.
With the credit card industry going through structural changes, he Said, competition has intensified, spreads are thinner, fees are disappearing, and acquisition costs are increasing. "Collections must bolster sagging profits," Mr. Parekh said.
Although American Express has shied from outsourcing in the past, Mr. Parekh said, the company now has developed partnerships with 10 or 15 vendors that he declined to name. "We now look at agencies as a net extension of our enterprise," he said.
Granting that American Express doesn't know everything has allowed evolution of an open corporate mindset, he said. "In the past, management came from the front end, rather than expanding the thinking that we have to pick up every ounce of profit out there."
With a number of new revolving products on the way from American Express, he noted, "consumer lending will be a major component of our business."