Technology Brings a Kinder, Gentler Process to Collections

  The business of collecting delinquent payments from credit card users has become a highly sophisticated and technology-driven enterprise. Indeed, advanced analytical tools, computer models and software programs that are available can cut labor costs and increase payments.
  And card companies that fail to make use of these vehicles risk losing out not only on millions of dollars in collections, but also on forging stronger relationships with customers. Many card issuers and their collection agents are discovering that debtors are more likely to make payments when they are offered an online alternative than when dealing with a telephone representative.
  Online Resources Corp. of Chantilly, Va., says a recent survey it conducted found that losses to delinquent accounts over six months are reduced by 310 basis points when its online payment service is used. That amounts to an annual savings of $3 million to an issuer with $50 million in delinquent accounts, says William T. Kinnelly, the company's president.
  Moreover, delinquent customers seem to prefer dealing with a computer. Online Resources' survey found that 87% of individuals contacted reacted favorably to being told they could go to a Web site to work out a schedule for paying off their credit card debt.
  Those in late stages of debt were even more inclined to favor online collection services, according to Kinnelly. Overall, 78% of the survey respondents believed that online collection services would reduce "bill payer emotional stress."
  An online collection tool, though, is just one of many advances in the once thorny and awkward endeavor of trying to retrieve payments from recalcitrant customers. Now, companies can target and formulate their collection efforts using risk-analysis tools that advise which debtors are most apt to pay and how well they are likely to respond to specific collection methods.
  Scoring systems show which delinquents are most prone to pay their debts. Other products advise debt collectors on the best time to call a delinquent and whether it is more advisable to allow the debtor to initiate the communications.
  Some systems will send e-mail messages to delinquent customers notifying them that they can visit a Web site to key in their debit card number to post payment to their account immediately, before they might have second thoughts about anteing up. Online models also allow customers to select personalized payment plans.
  Many of these systems have succeeded in collecting at least a portion of long-term debt that many companies previously had written off as a lost cause.
  Card companies are reluctant, for competitive reasons, to disclose the types of new systems they use to enhance debt collection. But the vendors that provide the products and services are more than happy to discuss them. TransUnion, Apollo Enterprise Solutions, Debt Resolve Inc. and Online Resources are four of the firms that provide online collections products.
  Sandra Lee Styer, chief marketing officer of White Plains, N.Y. -based Debt Resolve, says online collections of credit card debt are booming. "It's a system the consumers are ready for, and the market is jumping on it," she says. "The market acceptance has grown dramatically."
  Debt Resolve says that through its online payment system debtors are paying 15% to 18% above what its credit card company clients had expected. The card companies set the parameters for collection and possess the hands-on ability to administer the system using desktop computers. The issuers use their own branding on the Web sites that debtors visit to pay off their debts.
  Online payment options offer delinquents a way to avoid the embarrassment of communicating with an agent by phone. Just as significantly, they provide card companies with a reliable method to abide by legal restrictions on collections by systematizing the process in a way that human contact cannot assure.
  "A [human] collector may not follow all the rules," says Michael Rosenthal, director of collection solutions development at Chicago-based TransUnion. "A computer has to follow the rules."
  TransUnion is using technology to offer advice to clients on which accounts to pursue and which are unlikely to produce payments. TransUnion does not collect debts; it scores debtors and prioritizes them for the collection entities.
  A new technique TransUnion is using to improve collections is portfolio monitoring. Long-term delinquents' credit activity is observed, and if new activities are detected, such as the opening of a new home equity line of credit, it serves as a trigger for collection departments to renew efforts to go after existing credit card debt.
  Apollo offers its Intelligent Debt Settlement system, which bundles credit bureau consumer data, score modeling, third-party payment processing, and accounting and reporting functions. Irvine, Calif.-based Apollo provides an online self-settlement program in which qualified debtors can negotiate their repayment plans. Issuers can also offer online credit counseling.
  Austin Logistics Inc., of Austin, Texas, offers a predictive-analysis software product that enables issuers to learn the credit-worthiness of customers within the first few days of card usage. "Obviously, you want to identify those people who are delinquency risks as soon as possible," says Bob Tate, Austin Logistics vice president of marketing.
  Once customers are tagged as high delinquency risks, the issuer can employ strategies that include limiting the user's line of credit or notifying merchants to deny certain transactions. At the same time, the issuer can raise the ceiling on the credit line of those who are considered to be good customers.
  Austin's software offers issuers protection against high delinquency risk far more quickly than the three to six months it used to take to identify a customer's payment habits. "We want to help stop the risk before it gets to the point of collections," says Tate.
  At the collections point, Austin offers a product designed to cut costs and increase success rates. Coming under the umbrella of "collections operations optimization," it uses software to advise collection departments of the best time of day to call delinquent customers.
  If the product works as intended, fewer calls are made, thus cutting labor costs, and more customer contacts are secured, resulting in more payments.
  The latest phase of call optimization, according to Tate, involves predicting whether calls are worth making at all to given customers. Sometimes, customers might be angered by a collection call to the point where they will end their relationship with an issuer, despite plans to make a payment without the prompting of a call.
  "So for every account we do a predictive score and an action score to determine if we should make the call," says Tate.
  The key to Austin Logistics' approach, as well as that of other companies, is to view each customer account as a unique identity. A collection department can then use the company's products to tailor its efforts to the specific behavior and tendencies of each individual customer.
  Austin's predictions do not always hit the bull's eye and do not always result in payments. The company, though, says its products can be as much as 30% more effective than the collection efforts otherwise would be.
  Adeptra Inc., of Norwalk, Conn., has taken the computer collection business a step further than most by having a computer-not a collector-talk to delinquent card users. "What we've found is that it can be as or more effective than people calling," says Vytas Kilielius, Adeptra's president.
  And, unlike with humans, the computer never has a bad day or diverges from the script. "As a result, we reach more people," says Kilielius.
  Adeptra's automated alerting system is most effective, says Kilielius, with early-stage delinquents. When the debtor does go beyond the computer script, the call is transferred to a human representative. "It doesn't do everything, so you will still need agents," says Kilielius.
  The key, according to Kilielius, is to ensure that clients are contacted in a way that is most likely to prod them into paying. He says Adeptra's automated system can cut the number of human callers from 300 to 75 in a shop and even can sharply reduce the number of workers needed at call centers abroad. The savings can be more than 50%, he suggests.
  The collections field is changing rapidly from its longtime, labor-intensive approach. Contrary to preconceived notions, the shift to technology may actually help build a more debtor-friendly business.
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