The CFPB’s proposal outline and SBREFA panel

TrueAccord Blog

The CFPB’s proposal outline and SBREFA panel

Last week, TrueAccord participated in the SBREFA panel for the CFPB’s proposal outline for upcoming debt collection rule. The CFPB invited Small Entity Representatives (SERs) to discuss how the outline could influence their businesses. The industry expects a more fleshed out proposal quite early in 2017. One thing is clear: this rule will change the debt collection industry forever. Creditors, collectors and buyers should take note and start adapting to, rather than fighting the rule.

While this isn’t the final proposal, we can observe hints of the huge changes to come; it’s such a departure from current practices that applying this proposal retroactively may erase the majority of the debt buying industry. We don’t believe this is what the CFPB is aiming for. We see true desire to change operating principles in the debt collection and buying space, while showing a path forward. The outline included explicit references to new technologies, and some discussion of proper use of email. It also signaled the CFPB’s intent to provide safe harbor where it can, promoting best practices in the process. You can read our initial response here.

How should the industry respond to the CFPB’s proposal outline?

The industry’s responses to the outline have been mixed. While some SERs came to the panel prepared to discuss key issues (with tremendous help from the Debt Buyers Association), some focused on dissenting or simply pleading with the CFPB. However the time to dissent has passed. The outline’s broad strokes won’t change. These are our top suggestions for dealing with the coming changes:

  1.     Collectors must prepare for a world with almost no phone calls. Between the FCC’s TCPA ruling and the CFPB’s proposed rule, calling en masse is going away. The CFPB could issue a hard limit on calls or simply significantly increase litigation risk, by defining more than 6 calls a week as harassment. Either way, collectors must start adopting better data science for call prioritization and moving to alternative channels like email. There will be a significant reduction in the number of Right Party Contacts as the industry currently defines the term.We discussed in the past how using an integrated, multi channel approach can match and exceed current collection rates.
  2.     Collectors must prepare for a fundamental change in consumer interactions. One of the SERs noted that “[collection companies’ role] is to get the consumer on the phone.” The CFPB is changing that by mandating more data requirements, easier disputes, and improved consumer understanding initiatives. Clearly, collectors’ role is shifting from a glorified call center to a sophisticated service that guides consumers through repaying their debt, with more flexible payment options and much more information exchange. This model won’t support large call centers making millions of calls and commission based compensation.
  3.     Creditors must prepare for changes to their first party operations, while also changing the way they provide data to their agencies. Data integrity will become an even bigger issue when working with collectors, and old systems may not be a fit anymore. Using eDisputes, collecting feedback from consumers and making account data easily available in collections all require big changes – but will result in a leaner and better collection funnel.

Bottom line

We see early adopters already thinking ahead about these changes. Our clients work with us to adopt advanced servicing models for consumers, better data availability and flexible options across multiple channels. Still, many are behind, refusing to adopt new technologies or experiment with better customer care in the debt collection process. Clearly, the CFPB is ushering change and is not shy about it. It’s time to adopt before a new rule comes into effect.

Want to learn more about TrueAccord’s perspective and how we can help you adapt to this new world? Get in touch with our team!

It’s lonely in the Debt Collection Startups box…

TrueAccord Blog

The Startup culture has always been characterized by herd-style behavior.  There is a tendency to focus on a bunch of areas that are “ripe for disruption”. After a promising / well-publicized startup draws attention to a area – be it ride-sharing, marketplace lending, payments processing, risk management, or one of many others – many more rush in, attempt to differentiate themselves and get a piece of the action.  

Call me a skeptic – but when I see new entrants rushing into an already crowded niche, their reason for being there (Differentiated value prop? Superior talent? Can’t come up with a new idea, and investors are giving out free money here?) is rarely obvious.

There is one industry I can think of that has been aching for innovation, and yet has seen next to no startup activity.  This industry

  • Touches ~80 million Americans a year, in a way that is highly inconvenient, even disturbing
  • Makes little-to-no use of digital communication
  • Often burdens consumers with hefty service fees
  • Is responsible for more consumer complaints to the Federal Trade Commission than any other

This industry offers an experience that many go to great lengths to avoid – and yet, because consumers have no voice in the selection of the “service provider” they deal with, customer experience is frankly not a factor industry players optimize for.  The only party looking out for the consumers’ experience in this ecosystem are the regulators, who have recently proposed new rules that will improve customer experience – and, in doing so, may endanger the livelihood of the traditional service providers.  Do I have you on the edge of your seats yet? The industry is Debt Collection.

If this industry isn’t begging for innovation through usage of technology and analytics to interface with consumers in a more friendly, convenient, compliant, and effective way, what is?  And yet, in the infographic CB insights published last week (see below) which shows startups bringing AI / Machine Learning to Fintech, the Debt Collection box is not crowded at all – in fact, TrueAccord is the only player in it.  

AI-in-finance-20160722

This is not totally a mystery to us.  Debt Collection is not a “sexy” space.  The barriers to entry are also significant – it has taken us over two years to become fully licensed (as most States have separate licensing processes and requirements), and procedural Compliance requirements are complex and State-specific as well.  What makes it all worth the hard work is the opportunity to make a difference for tens of millions of people, many of whom don’t know where their next rent payment will come from, who are desperately struggling to attain financial stability, and can use a service provider who is on their side and is looking to make the experience less difficult for them.  

We are proud of making significant headway in a space few other startups have ventured into.  Over the past three years, through a massive investment of Data Science, Analytics, and Engineering talent, access to millions of records of data, and multiple iterative optimization efforts, we have built an intelligent, automated, highly scalable Collections engine.  We are excited to hear consumers tell us “We’ve never worked with a friendly collections agency before – where did you come from?”.  And we are overjoyed to work with over 100 corporate clients, including several large financial institutions, that care about treating their customers (even former customers) well and are excited about the recoveries we bring (compliantly) to the table.

Will other startups join us in the Debt Collection box? If they do, we are ready – with our 3-year first-mover advantage and a product-market fit that took several years to find and build for, we are uniquely positioned to continue driving innovation, taking share in this market, and making Debt Collection a less unpleasant experience for millions of people.  

New white paper: code driven compliance keeps you safe

code driven compliance keeps you safe

Compliance is top of mind for the debt collection industry. Highly regulated at the State and Federal levels, collectors are subject to dozens of laws and regulations that govern every aspect of their operations. A highly litigious culture based on strict liability laws means a constant threat of lawsuits, resulting in shifts in courts’ interpretations of various statutes. To pile on, debt collectors are subject to active enforcement and rulemaking activity and attention by lawmakers, leading to ongoing updates in debt collection laws. What can debt collectors do to get ahead of them curve? At TrueAccord, we know code driven compliance is the answer.

While compliance pressure mounts, the industry hasn’t changed its traditional operating model. Hundreds and thousands of human operators use dialers to continually ring up those in debt. They spend hundreds of hours discussing sensitive issues with customers, and are oen compensated with a commission on debt repayments. This model has survived TCPA rulings, enforcement actions, class actions and dramatically soaring legal and compliance costs. Its combination with a rapidly changing regulatory environment is a challenge that many lenders and collectors are struggling with. Compliance officers at these companies are trying to solve an extremely hard optimization problem: how to design and implement a control structure that effectively detects and mitigates compliance exposure, while optimizing on compliance resource allocation and exposure.

Code driven compliance: a fundamental change in compliance management

In this white paper, we review a code-first approach to compliance. Developed as part of a machine learning-based alternative to debt collection via large call centers, it solves the major pain points the industry is facing with regulators and legal experts. We discuss how this model works for TrueAccord, a machine learning based collection service, and for its clients. If you’d like to learn more about our service, check out our website.

To read more, download the free white paper here.

Augmenting your strategy with automation: part three of three

Augmenting your strategy with automation: part two of three

Automation and digitization offer new tools for the collection strategist, augmenting the traditional building blocks. These new tools, introducing flexibility and sophistication that are usually attributed to other parts of the business, can mitigate common pitfalls.

In this series, adapted from our free eBook Automating Debt Collection 101, we’ll review the three major areas where automation and digitization can boost a collection strategy:

  • Early contacts and improved segmentation
  • Persistent communication
  • Improved customer satisfaction

In this last part, we’ll focus on improving customer satisfaction with automation.

The daily grind of agents talking to customers in difficult situations coupled with tight regulation is complicated to control. While talking points and call scripts are used, it’s impossible to control what actually happens in a call in real time, and no amount of QA can solve that.

When debt collection is automated, many of these problems are mitigated: machines aren’t baited or biased by angry customers, and maintaining code-controlled compliance is much easier than controlling hundreds and thousands of human agents. Machine based communication is pre-written, with no way to deviate, and every action is properly logged to offer incredibly auditability. The system stays on brand, and delivers a consistent experience to all customers based on pre-set requirements. When something changes in regulation, propagating the change via code is significantly easier than retraining hundreds of agents.

A great experience has other benefits. Finding the way to get late customers to work with you again also increases Life Time Value and increases revenues in the long run. Some of TrueAccord’s customers see more than $2 in added business from paid-up debtors for every $1 recovered. Providing a flexible service improves recovery, contributed to Net Promoter Score, and even reduces your legal risk and number of complaints.

Want to use our tools to optimize your strategy? Visit our website to learn more.

Common pitfalls of collection strategies: part three of three

Common pitfalls of collection strategies: part three of three

There are multiple reasons for preferring certain collection strategies over others. Every strategy has built in areas of weakness that cause it to make less money than possible. Strategies shouldn’t be stagnant, and as new tools present themselves, strategists can continue to fine tune their strategy and improve returns.

In the following three post series, adapted from our free eBook Building a Collection and Recovery Strategy, we’ll review the top three pitfalls we see with common collection strategies. They are:

  • Under-charging when selling or over-paying when outsourcing
  • Only focusing on a small percentage of customers in an outsourced strategy
  • Losing customer relationships in a sell or litigation heavy strategy

In this final part, we’ll talk about sacrificing customer relationships with an aggressive strategy.

A common wisdom is that retaining customers is a much more profitable activity than acquiring them. Yet when reaching recovery, most companies default to relatively aggressive tactics with limited regard to the customer’s unique situation and the chances of retaining them.

Large financial institutions now realize that during the lifetime of a customer, they may end up in collections but recover over time and get back to being a profitable account. This is why more banks and non-bank lenders adopt a customer-friendly approach in recovery, giving customers flexible repayment options with the goal of keeping them engaged. Long term, this approach is more profitable, but harder to maintain with traditional sell/outsource tools because of their limited scalability and lack of commitment to the lender’s brand.

Want to use our tools to optimize your strategy? Visit our website to learn more.

Augmenting your strategy with automation: part two of three

Augmenting your strategy with automation: part two of three

Automation and digitization offer new tools for your collection strategy, augmenting the traditional building blocks. These new tools, introducing flexibility and sophistication that are usually attributed to other parts of the business, can mitigate common pitfalls.

In this series, adapted from our free eBook Automating Debt Collection 101, we’ll review the three major areas where automation and digitization can boost a collection strategy:

  • Early contacts and improved segmentation
  • Persistent communication
  • Improved customer satisfaction

In this second part, we’ll focus on improving performance with persistent communication.

Customers in debt are in a dire situation, cannot pay the balance in full, and many times even a payment plan isn’t feasible. A call center is limited in its flexibility – beyond a certain number of payments or customizations, a human agent is just too expensive. These accounts risk being mishandled, and end up paying less than they could with some “hand holding”.

Automated collections have a tremendous advantage in handling complex cases. The platform consistently follows up with customers using multiple channels, offering various solutions according to an optimized offer strategy, and administers changes in those solutions (split payments, rescheduling and more) over time as needs change. These tools can accept and administer a monthly $5 payment that increases over time, even if the customer misses a few payments and needs consistent follow-ups. When the vast majority of contacts are automated, even small amounts are profitable – and add up. The system doesn’t get tired, doesn’t get angry, and doesn’t need to go home by the end of the day. It’s there to service the customer.

TrueAccord sees more than 35% of customers in an average placement click on a link and negotiate with an automated system, thanks to diligent and relevant follow ups. In tests, working on the long tail of underserved accounts yields 4-8% of additional recovery – dollars that would otherwise be considered lost.

Want to use our tools to optimize your strategy? Visit our website to learn more.

Common pitfalls of collection strategies: part two of three

Common pitfalls of collection strategies: part two of three

There are multiple reasons for adopting one strategy over the other. Every strategy has built in areas of weakness that cause it to make less money than possible, but all have common mistakes – some shared and some unique. Strategies shouldn’t be stagnant, and as new tools present themselves, strategists can continue to fine tune their strategy and improve returns.

In the following three post series, adapted from our free eBook Building a Collection and Recovery Strategy, we’ll review the top three pitfalls we see with common collection strategies. They are:

  • Under-charging when selling or over-paying when outsourcing
  • Only focusing on a small percentage of customers in an outsourced strategy
  • Losing customer relationships in a sell or litigation heavy strategy

In this second part, we’ll touch on another one of the common mistakes we see: having a narrow focus when collecting.

Traditional debt collection is difficult to scale, and heavily relies on humans making phone calls. Collection agents try to stay away from accounts that require a lot of interaction to recover. Because of the high cost of a call, agencies focus on calling accounts with the highest yield for them. Agents are also human, and humans – especially those making commission – want the home run, not the singles and doubles. Low balance accounts, accounts that cannot currently pay or ones that require a long time to convert will get less attention. That creates underserved segments and lower returns for the lender.

We think the issue is the limited set of tools offered to collection strategists. The low margin problem is inherent to call centers, and most debt collectors are exactly that: specialized call centers. They have no ability to provide the type of flexibility required by a lender that doesn’t have homogenous portfolios with high average balances. A lot of money is left uncollected in the long tail.

Want to use our tools to optimize your strategy? Visit our website to learn more.

Augmenting your debt collection strategy with automation: part one

Augmenting your strategy with automation: part one of three

Automation and digitization offer new tools for the collection strategist, augmenting the traditional building blocks for your debt collection strategy. These new tools, introducing flexibility and sophistication that are usually attributed to other parts of the business, can mitigate common pitfalls.

In this series, adapted from our free eBook Automating Debt Collection 101, we’ll review the three major areas where automation and digitization can boost a collection strategy:

  • Early contacts and improved segmentation
  • Persistent communication
  • Improved customer satisfaction

In this first part, we’ll focus on using automation to facilitate early contacts and improved segmentation.

Automated collections are scalable. This means communicating with all customers as early as possible in the collection cycle, quickly working to resolution with those who can pay, and a more robust debt collection strategy. In traditional call-center collections, up to 50% of meaningful interactions are made within the first 30 days of communication. With an automated strategy, most of that value can be captured in a much more cost-effective manner, in a much shorter time span. No more guessing who to call first because everyone can be contacted at scale.

Further, automated and digital collections create a wealth of data that cannot be gleaned form calls. User clicks and browsing, time and day of activity and more. The data can be used to segment accounts to those who are engaged, those who’ll respond better to phones, and those who should be sold or handled in other ways. It allows much more flexible recall criteria than placing for a set number of months, no matter what happens with the account. This means giving accounts the treatment they need at the right time, improving liquidation as well as cost to collect thanks to the scale of operations.

Want to use our tools to optimize your strategy? Visit our website to learn more.

Why we chose a 7 year exercise window (and other startup thoughts)

Why we chose a 7 year exercise window (and other startup thoughts)

I wrote this post to talk about how we view startup culture at TrueAccord. In a way, it’s also an indirect response to a16z’s post about employee equity. We believe people who worked hard deserve their share, much like investors who put in money do.

Recently we announced to our team that we’re adopting a new policy to let employees who stayed with the company for two years keep their unexercised options for up to 7 years. This is considered very pro-employee (though we think it’s not that extreme) and I want to give context to why we did it – because the move is rooted in our deep beliefs regarding what a startup company should be for its team members.

I started my startup career at FraudSciences (FSC), in March of 2005. It was an amazing ride, ending with a $169m acquisition by PayPal. It gave me a lot – insights, experience, enough cushion to skip a few months of work when I started my next company. Interestingly, though, while being a part of FSC’s success, I never got a good look behind the scenes. I rarely spoke to investors, was not exposed to leadership dynamics, and saw almost none of the sausage making. There was almost no discussion of the “meta” of building a startup. FSC was amazing, but upon starting my own company, I only had what I could learn on my own.

Learning how to Startup together

When we started TrueAccord I had a lot more experience. It helped me and my co-founders align on what we wanted company culture to be like; much as TrueAccord is working to be a force for good in a traditionally problematic industry, we wanted it to be more than a workplace for team members. We wanted it to be a stepping stone, a company that’s not only good to work at but also to be from. One whose team members go on to start their own successful companies, and perpetuate this world view. That seems to be the best way to help our community – train its future leaders, forged in the fire of actual startup making. It also creates incredibly effective team members, committed to the goal not by blind admiration to founders or a cult-like culture but by being actually, tangibly vested in the company building process.

To reach the best learning and vesting environment, we had to overcome three different issues: one, team members often don’t have enough information to understand what’s going on. Two, there’s little to no time to reflect on and re-evaluate strategy outside of a small group of people. Finally, only a small subset of the team typically feels truly vested in the business through meaningful equity ownership.

This is what we did.

Radical transparency

The first step to understanding why things happen a certain way is knowing what’s going on. When an organization is opaque, knowledge accumulation starts being equated with power, and it becomes too easy to spread misinformation. We wanted people to know what’s going on. Keeping operations transparent also keeps leadership honest – when you don’t keep secrets, you become a lot more calculated in your decisions. A great example is compensation: while I don’t recommend that team members share what they make, I’m not worried about them doing so because as a leadership team, we stand behind every compensation decision we make. Being transparent doesn’t mean we never make mistakes – but we own them openly with the team, because that makes us stronger.

We adopted radical transparency (though we don’t find it radical): unless it shouldn’t be shared, knowledge is open to all. We share company progress, financials, thoughts about strategy, reasons for various decisions and more. We discuss them openly in all hands meetings and distribute them internally. All team members know what the founders’ share of the company is, how much is in the options pool, what terms investors got, what our terms are with our largest clients and so on.

Transparency has its limitations. We don’t share personal matters, or legal matters outside of what can be shared. We also don’t overshare details about fickle processes like enterprise sales (outside of major milestones) nor do we share notes from every meeting. These are trinkets that less experienced employee mistake for knowledge. Still, everything meaningful is available, and team members are encouraged to ask questions and be informed.

Thinking about work

Once you have information, what do you do with it? It’s not only knowing what’s happening that matters, but also putting it in perspective. What should our strategy be? What are our market conditions? How should we change going forward? These are important questions that are rarely asked outside the executive team.

It’s important to understand: we didn’t adopt holacracy. We didn’t abolish management. We have clear areas of responsibility with accountability and authority owned by the same person or function. That doesn’t mean that we can’t challenge ourselves to recognize our mistakes as a team and get better.

Our group reflection exercises take shape in a few forums:

  1. A chat channel to discuss industry news and how they influence our industry and company. Anything from changes in the funding environment to how recent case law influences our operations in certain market segments.
  2. Monthly breakfasts where attendees discuss company strategy and raise pressing issues, and monthly sessions with smaller functional group with open agenda.
  3. Q&A sessions with the Leadership team, preceded by collecting anonymous questions, so we can raise the most difficult issues the team wants to discuss.

There’s still more work to do here. I’m happy that no question we’ve been asked, even the toughest ones, was surprising. I always feel prepared to answer tough questions because these are the topics my leadership team struggles with on a daily basis. On the other hand, we have to continue learning how to raise strategic concerns as a team and think about work beyond the daily grind. It all starts from leadership teasing out tough questions by challenging themselves in public. What were our biggest mistakes? Why do we continue working in this or that segment? Once that snowball’s big enough, it starts rolling.

Sharing the upside

You don’t need f-you money to start a company, but “ramen profitability” limits talented potential founders with families and responsibilities from working on their ideas. I didn’t “score” anything big from FSC but it allowed my then co founders and me to approach Signifyd and Analyzd with ease of mind, and refuse the first acquisition offer that came our way. We want that for our team members; the feeling that 1) they own enough of the company, right now, for it to matter for them financially and 2) that they get to keep that value. That means two things:

First, we aimed to be generous with option grants. Our founding team has equal holdings and we wanted team members to benefit from the pool as much as possible, too. I estimate that, after the next round, employees could cumulatively own more equity than founders do, and I think it is healthy.

Second, when someone spends time creating value for the company, we don’t want them to leave without it or feel trapped because they need too much money to exercise their options. That’s why the board decided to let anyone who worked at TrueAccord for more than two years have a 7 year exercise window for their vested options (this is the “Pinterest Model”).

We’re still grappling with ownership, control and upside. Maybe there’s a way to distribute upside in hindsight (after a liquidity event) that optimizes taxes, but doesn’t undermine control for the founders while the company is still running. As an investor, I wouldn’t automatically support a structure that allows founders to give out more equity while maintaining their key holder rights in the company. So it gets complicated really quickly, but I think we’re striking the right balance at TrueAccord given the constraints.

Bottom line

Part of creating a new company is setting its culture. I think culture shows in what you do with and for team members, more than massages or unique color schemes. For us at TrueAccord, turning the company building experience into a learning experience that everyone can benefit from, driving a positive change through the way we do things, is a key cultural component. If you like these ideas, feel free to steal them or come join us (we’re careful with our money and hire for very specific positions).

If you’d made decisions that you believe are helping your company deal with these issues effectively – let us know. We’d love to learn from you!

Common pitfalls of collection strategies: part one of three

Common pitfalls of collection strategies: part one of three

There are multiple reasons for adopting one collections strategy over the other. Every collections strategy has built in areas of weakness that cause it to make less money than possible. Strategies shouldn’t be stagnant, and as new tools present themselves, strategists can continue to fine tune their strategy and improve returns.

In the following three post series, adapted from our free eBook Building a Collection and Recovery Strategy, we’ll review the top three pitfalls we see with common collection strategies. They are:

  • Under-charging when selling or over-paying when outsourcing
  • Only focusing on a small percentage of customers in an outsourced strategy
  • Losing customer relationships in a sell or litigation heavy strategy

In this first part, we’ll focus on mis-pricing your portfolio when debt sales are part of your collections strategy.

When selling debt or outsourcing, the lender’s interface with vendors is almost deceivingly simple. Companies tend to mix high yielding accounts with low yielding ones – and end up recovering less from the former so they can get rid of the latter. That is often the result of a rudimentary segmentation and pricing strategy at the seller. Even when segmenting, collection strategists often settle on a simple champion/challenger model for each segment to get the best price or lowest contingency rate.

This limited model is based on two issues:

  • First, the assumption that collection services are commoditized and don’t offer any unique technique, so price is the only differentiator. If everyone is the same, why segment?
  • Second, there isn’t a lot of data feedback in collections to allow proper behavior-based segmentation. Collection agencies aren’t set up to provide high quality data feedback, and debt buyers will often not want to share. The only mode of operation is to sell or place and forget about the debt for a while.

Want to use our tools to optimize your strategy? Visit our website to learn more.