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After more than four years of working to build the Internet into an effective collections channel, resistance to the technology is starting to ease, according to Mercator Advisory Group Inc.
Just 5% of delinquencies are recovered online, reports Mercator, but signs are emerging that a growing percentage of delinquent consumers, even some in late-stage collections, are not only more receptive to the online channel to pay overdue bills but at times are requesting that lenders provide the option – as opposed to negotiating with an agent or paying through automated phone systems.
For some debtors, conducting transactions on the Web simply is more intuitive than interacting with a bank teller, mailing a payment or even going to a store to make a purchase. "Many consumers definitely have a greater comfort and trust level paying a past due account via the Internet than they do with other channels," says Jess Patterson, director of IT at Coast to Coast Financial Solutions, a Thousand Oaks Calif.-based collection agency that uses an online collection application. "The convenience factor of being able to pay the bill on their time, and the feeling of anonymity, both play a role," he says. "A lot debtors contacted by agents want to get off the phone as fast as possible and this offers an alternative way to bring the account current without the agent having to push for the payment."
Since Coast to Coast began rolling out its online collections application from Alliso Viejo, Calif.-based Global Collections Systems (GCS) in January, the agency has experienced a higher adoption rate than expected and receives regular calls from customers seeking help to log onto the site.
Consumer comfort with the online channel is just one of many drivers behind the acceptance of online collections. With delinquencies currently rising for all types of debt, lenders are searching for new ways to increase recovery rates while keeping the lid on operating costs to boost margins and increase agent productivity.
"We always have to watch our expenses because they impact our margins and collecting online reduces our costs," says Patterson. "It also takes some of the load off of our agents."
The ability to leverage existing platforms used to run Web sites, online banking or bill payment pages also is attractive to lenders and agencies as it spares them the cost of needing to reinvent the wheel or signing contracts with multiple vendors.
Coast to Coast's Patterson says one reason it chose GCS was because its payments processor already ran GCS applications, which streamlined the integration path.
Lenders and agencies also like that the online channel operates 24/7, which provides a greater level of convenience to debtors with busy schedules or who simply prefer to conduct their business after hours, knowing they will not have to interact with an agent.
The channel's round-the-clock availability negates the nettlesome restrictions of the Fair Debt Collection Practices Act, which limits outbound calls between 8 a.m. and 9 p.m. Card issuers that have set up online collection pages – about one-third of the Top 20 – recover between 20% and 30% of delinquent dollars outside the window for contacting debtors, according to Mercator, which is based in Waltham, Mass. Another 15% to 20% of recoveries occur on weekends.
Further, collection managers can tweak the applications to reflect their treatment strategies. For example, the application can be set to negotiate a payment plan or present a settlement amount so the account can be closed. "The goal is to get debtors to self-cure, not just make a payment," says Bill Kinnelly, senior vice president of marketing, e-Commerce Services at Chantilly, Va.-based Online Resources Corp.
These benefits have not gone unnoticed by lenders and creditors and predictions are that the number of lenders and creditors offering online collection sites soon will explode. "We expect every major card issuer to either have a site operating or in development within two years," says Ken Paterson, director of Credit Advisory Service at Mercator. "We also expect implementation to extend beyond card issuers to agencies and other third parties involved with working bad debt."
Bad debt buyers, collection attorneys, insurance companies and utilities are reportedly using or showing interest in online collection sites. "We have some collections attorneys who use the application as a marketing tool when soliciting new business," says Caryn Carpenter-Cadez, president of GCS. "It's a way to show they are embracing the latest technologies to successfully reach debtors and recover balances."
Indeed, the Internet has become nearly ubiquitous with 76% of adults having Internet access at home or work, according to Mercator. Also, at least 11 million delinquent credit cardholders are prospects for paying their debt online, according to Mercator. "There is no question that the online channel must become part of the collections mix," says Mercator's Paterson.
Early adopters are finding the online channel an effective tool for boosting liquidation rates.
According to Online Resources, one national collection agency using its Virtual Collection Agent application increased liquidation rates three-fold compared to portfolios worked using traditional collection methods. Also, payments made by debtors through the site increased four fold.
On average, collection managers using Virtual Collection Agent can expect to boost recoveries by 10%, according to Online Resources. In 2005 when the company piloted its application, debtors who used it had a 57% higher balance than users of other collection methods. "The performance of the channel is being proven and users that market this channel at every opportunity are finding that their performance improves further," says Online Resources' Kinnelly.
Other vendors report similar findings. White Plains N.Y-based Debt Resolve Inc. says its customers have an average recovery rate of about 18% and that 50% of debtors who log onto its site, which is branded on behalf of the client, bring their accounts current or settle the outstanding balance. Debt Resolve has $28.6 million in debt under management.
"Our sweet spot is the consumer age 35 with four credit cards and $12,000 in debt," says Ken Montgomery, CEO at Debt Resolve. "These debtors tend to be Internet savvy and have some of the highest debt loads."
Plus, these debtors are more likely to apply for a credit card or initiate a loan over the Internet, which is indicative of their comfort level with using the channel to pay on an overdue account, he says.
Two of the most telling performance metrics for online collections are that 20% of debtors will log on to a collections Web site after hours and that about 50% of those debtors are in the later stages of delinquencies. "About two-thirds of the debtors that used our site during the pilot stage did not have a right-party contact by an agent the preceding three months," says Kinnelly.
Those are tremendous gains for lenders. Agents can spend months trying to contact a debtor with little success. By getting them to self-cure online, collection managers can redeploy agents to other tasks, thereby increasing their productivity. Cadez-Carpenter says one client freed up four agents by deploying GCS' online application.
Directing consumers to the collections site, however, remains a marketing communications challenge. Phone messages, prompts for inbound callers and dunning letters listing the site address are common tools that make debtors aware of the site's existence, but the key is to provide a Web address that is simple and easy to remember.
That is especially true when leaving a voice message using a prompt through an interactive voice response unit for outbound campaigns. "The address needs to be something simple, including the company name, and should not have back slashes or other extensions – such as www.companyname.collectionspage.creditcard," says John Keefe, director of product management at SoundBite Communications, a Bedford, Mass.-based provider of multi-channel communications applications.
A simple Web page address is key because anecdotal evidence suggests consumers do not have the patience to re-enter a Web address more than a couple of times if they do not initially get it right. In the collections arena, debtors are not going to log onto a search engine such as Google to see if they can find the site, unlike shoppers hunting for a retailer's site, according to industry experts.
While e-mail and text messages are considered far more effective as a marketing communications tool since links to the collections site can be embedded in the message, lenders are just building their databases of addresses and mobile numbers. Most lenders have e-mail addresses for no more than 20% of their customers and most are just beginning to gather mobile numbers, says Mercator's Paterson. "It has not been a common practice to gather this type of information during account initiation, so there is a lot of catching up that needs to be done," he says.
Lenders also need to keep in mind that when gathering this information, customers need to be presented with the choice to opt in to the mailing list and opt out when messages are sent.
Even when building opt-in lists, collection managers face the daunting task of getting e-mail messages past spam filters. There is no sure way to circumvent a filter as customers can set preferences to block specific keywords or addresses, which the sender of the message will not know, according to Charlotte, N.C.-based Bank of America, which has deployed an online collections application.
That makes sending e-mail messages a matter of trial and error. Industry experts agree extensive testing of keywords whether the domain name of the server used to send those messages can pass through the spam filter of an Internet Service Provider (ISP) is the answer.
The latter is important as many lenders will use agencies to coordinate e-mail campaigns to debtors on their behalf, which means the domain name of the server used to send the message will not match the return e-mail address of the client that appears in the message.
ISPs often will flag these messages as attempts to spoof a Web site and reject them. SoundBite has addressed the issue by writing a rule into its e-mail application that notifies the ISP its servers are authorized to send a message on behalf of the client, which the ISP verifies with the client immediately.
Still, there are no hard-and-fast rules about what gets past a spam filter and many messages end up bounced. "Let's face it, spammers have figured how to beat spam filters, even when using explicit subject heads, but for the rest of us, it's trial and error," says Carpenter-Cadez. "In a sense it's like trying to get into a speak-easy during prohibition. Either you know the password or you don't."
With forecasts that consumer debt loads will rise and lead to more delinquencies in the coming year, collection managers looking to boost recoveries, liquidation rates and agent productivity will no longer be able to ignore online collection applications, especially now that the technology has a successful track record.
"The technology got off to a slow start but the time has come for it to take off," says Mercator's Paterson. "Just as consumers are interacting with lenders more online, lenders must interact more with debtors online." CCR
