U.S. banks can learn a thing or two about electronic credit management from British retail banks which, eager to manage their credit risk more efficiently and streamline debt collection systems, have produced favorable results with Debt Manager, a software package developed by London Bridge Software Holdings Ltd. Now, London Bridge is targeting the U.S. banking market with LBSS, Inc., its subsidiary based in Delaware, MD.

Installed at every major retail bank in the United Kingdom, LBSS's Debt Manager system is an arrears management system which enables collection departments to design a customized system that assesses the underlying risk of customers in determining the appropriate collection, recovery or legal strategy that should be employed.

Debt Manager enables banks to choose whether to use it for collection, recovery or both. The system produces information for assessing risk by retrieving financial institutions' internal consumer profiles (including delinquent, charged off and active account data), as well as external data from credit reporting agencies. Additionally, it stores data on the value of the underlying collateral.

If a customer misses a payment on a car loan, for example, the system will factor in the automobile's value as part of the risk. This, along with other data, gives the bank the ability to assess the level of risk before turning it over to a third party to collect the debt-a flexibility that LBSS officials contend is lacking in other systems, which would automatically mark the account delinquent and turn it over to a collection agency. The upshot of automatic delinquencies: the bank could possibly alienate valued customers. According to Joe Milne, president of London Bridge's U.S. operation, other systems look at individual debt, but not at the performance of the individual over time as the Debt Manager system does.

Once the system has been installed at a financial institution, Debt Manager tracks accounts automatically. The software alerts the debt collector only when human intervention is required.

So far, Milne says that LBSS has demoed the system to a number of U.S. banks, though the company has not yet cinched a deal. He also says that several major U.S. banks are planning to visit with their U.K. counterparts to see how Debt Manager has been implemented.

The firm's U.K. clients have used the system to cut costs from their debt collection operations. "It's brilliant," says Howard Watkin, general manager of collections at First National Bank in London. The firm expects to cut processing costs by 20 percent when it finishes installing the system in this month.

Watkin says that, although the system costs more and can take twice as long to install than other debt management systems, it's well worth the wait because it's the most flexible.

The cost to implement Debt Manager ranges from $250,000 to $1 million. Expenses vary with the software's use, the number of accounts the system processes, the number of employees who use it and the required employee training time. The bank is responsible for the hardware compatible with Debt Manager, which can run on relational database platforms such as an IBM AS/400, Oracle or IBM DB2. And if a financial institution's needs change, Milne says, the system can be redesigned to accommodate new information in a week.

First National Bank, which currently handles most collection procedures manually, expects Debt Manager to eliminate 80 percent of the paperwork needed to maintain its 22,000 accounts. "We looked at every system, and London Bridge's is the best," Watkin says.

Debt Manager also can be used to consolidate a bank's collection systems. The Bank of Scotland implemented the system 18 months ago when consolidating its three separate collection departments into one, creating a central recovery system. "The biggest benefit is efficiency," says Bob Welsh, head of collections for the Bank of Scotland in Fife, near Edinburgh. "Instead of taking three actions, we're taking one."

The bank uses the system to manage its 100,000 accounts and its two million credit card accounts. "It's a tool kit that gives us a close ability to keep control of costs," Welsh says.

Other high brow London Bridge clients include Barclays, Royal Bank of Scotland, and Hong Kong Shanghai Group. It appears as if London Bridge's success with these banks is opening many doors. Last month, founder Gordon Crawford took the company public; it's now traded on the London Stock exchange.

-mulhern tfn.com

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