Collection Efforts Go Hi-Tech

  Imagine a retailer that issues credit cards being able to minimize delinquencies and bad debt by considering the various products its cardholders buy in its stores as part of their overall risk score. It's not as far-fetched as it sounds.
  The key is weighting the cost of the products purchased. Cardholders who always buy low-priced products when mid- and high-priced versions are available most likely have tight budgets that can cause them to become delinquent with the slightest hiccup in their cash flow.
  This is just one small example of the many new software systems lenders, creditors, collection agencies and collection attorneys are deploying to create new efficiencies. For many, the goal is to redeploy staff more effectively and respond better to market changes.
  "Nimbleness is essential to responding to today's rapidly changing market conditions, especially as more court rulings affecting collections and credit granting are handed down and laws put into place," affirms James Taylor, vice president of enterprise decision management technologies at Fair, Isaac Corp. "Waiting months to respond to a change can be quite costly."
  For years, the economics of deploying any technology was centered on operating efficiencies it could create. Now, lenders and agencies are looking to software systems to also tell them the cost of taking a specific action when working an account. The goal is to optimize the treatment of the account.
  "Every collections manager has cost restraints when it comes to working accounts," says Robert Tate, vice president of marketing for Austin, Texas-based Austin Logistics. "Knowing the cost per action and the likely response that action is going to generate makes it possible to more effectively deploy resources."
  Austin Logistics' ActionSelect allows collection managers to weigh the cost of each action against a projected outcome based on the risk of the debtor. For example, it makes no sense to repeatedly attempt contacting a high-risk debtor who is unlikely to pay by phone if the account is likely to roll to the next level of delinquency. Instead, it may be better to immediately turn the account over to a collection attorney.
  A leading credit card issuer deploying ActionSelect was able to reduce roll rates by as much as 50% within the first 30 days, Tate says. In addition, the issuer reduced chargeoffs on a single portfolio by $10 million. The improvement was achieved by utilizing 10% fewer resources and applying lower-intensity treatment plans. By optimizing treatment plans, the issuer was able to recover more dollars sooner.
  Most collection managers likely would say flexibility and extendibility are at the top of their wish lists when it comes to choosing an operating platform. Historically, any changes made to an operating platform had to be made by an information-technology department. It was not always the most expedient process, however.
  Fair Isaac is addressing this problem with Blaze Advisor, a software system that combines data analytics, modeling and policy-level control to allow decision-makers to define and manage their automated business systems in conjunction with IT departments.
  Collection and risk managers can log onto the Web-based application and view productivity reports and make changes to the business rules governing their credit-granting policies or treatment strategies either from a menu of existing rules or by inputting the parameters of a new one. "This ability gives non-IT personnel a way to make controlled changes," says Taylor. "It allows the business side to fill in the daily criteria without having to go through IT."
  The payoff for end-users is a more efficient use of staff. "It's not so much about eliminating staff as it is redeploying them more efficiently," Taylor says.
  Transaction processor First Data Corp. recently deployed Blaze Advisor in its merchant services division. First Data says it opted for the system because it provides the flexibility to adjust its risk models daily and in turn deploy personalized customer management strategies. Overall, the company sees Blaze Advisor as a way to improve merchant retention and acquisition.
  FREEING UP DATA
  Freeing data from across the enterprise is the impetus behind ClickFox, a customer behavior intelligence program that tracks customer interactions across multiple channels. By tracking how debtors interact with the call center, interactive voice recognition systems and the Web site, lenders and collection agencies can follow the path taken by the account holder through each touch point, how much time they spent performing each step, and when and where they exited the interaction.
  Such information is particularly useful for identifying sticking points within interactive voice recognition and Web-based service solutions. "Knowing how long someone spent listening to the prompt, whether they had to repeat the prompt several times or toggle back and forth between screens indicates where stopping and exit points occur," says Alex Massie, director business solutions for Atlanta-based ClickFox.
  OPEN DATA FORMAT
  Although attorney collection networks have been around for decades, they typically have been closed-loop systems lacking a data-format standard. That meant data sent through the network had to be formatted to the specification of each law firm designated to receive a file.
  For an agency sending thousands of files a week to an attorney, that meant dedicating several personnel to convert files and manage any exceptions when mapping the data fields to the appropriate formats.
  One solution has been the adoption of a Web-based platform built on an open data format.
  The network, known as YouveGotClaims.com, provides users flexibility by converting data in an ASCII format before transfer and then automatically mapping it to the user's internal collection system upon receipt. Files automatically are updated each time an action is taken, such as when the debt has been dismissed or dismissed with prejudice.
  "Having the formatting and updating process managed for us is a big-time saver because we no longer have to track the transmissions to the attorney firm to see if they are in the proper format," says Ryan Stanley, a manager of legal outsourcing for Midland Credit Management, an Encore Capital Group Inc. subsidiary.
  The adoption of YouveGot-Claims has substantially reduced the workforce needed to manage the exchange and formatting of files for Midland Credit, which has assigned 20 people to the task. "If we had to do it manually, we'd need about 100," estimates Stanley.
  Several leading collection software vendors, including Commercial Legal Software, JS Technologies, Collect 1, Hubbard Systems, Ontario Systems and CUBS, have written interfaces to the data format used by YouveGotClaims. Users running proprietary software can write their own interface.
  What further differentiates YouveGotClaims from past attorney network solutions is the depth of reporting. Users can slice and dice action taken on an account into a wide variety of categories, such as liquidation rates for the entire portfolio, by account, per state or ZIP code.
  "Many of the reporting features we've added have been done so at the request of clients," says Warren Rosenfeld, president and general counsel for Montville, N.J.-based YouveGotClaims.
  With software vendors increasing the sophistication of their offerings, lenders and agencies are in a better position than ever to optimize their productivity to get the most bang for their buck. The challenge is to find the software that works best in the specific situation a firm needs to use it.
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