How Tax Season Affects Debt Collection – and TrueAccord

TrueAccord Blog

By Roger Lai, TrueAccord’s Head of Analytics.

Tax Season in Debt Collection

Tax season is to debt collection as holiday season is to retail. According to the National Retail Federation, of the 66% of consumers who are expecting a tax refund this year, 35.5% plan to spend their refund on paying down debt. For this reason, mid-February through May is considered the most productive time of the year for debt collection by many in the industry.

Impact on TrueAccord

TrueAccord’s approach is unique in the debt collection world, so we were curious as to how tax season would impact our business compared to traditional collection methods. In the first half of February, collections growth was trending similarly to what we saw in previous months. As the first wave of tax refunds reached consumer bank accounts the second to last week of the month, we saw a dramatic spike in customer engagement and payments towards debts. Factoring in a seasonal adjustment, we’ve estimated that tax returns more than doubled our month-over-month collections growth in February.

Change in Payment and Commitment Composition

When we look at the distribution between one time payments (paid or settled in full) and payment plan sign ups, payment plans as a percentage of total dollars have trended up over time as we continue to offer more consumers flexible payment options. As tax season hit, we saw a shift in composition where one-time payments as a percentage of total dollars increased by 2x.

Zeroing in on payment plans alone, we can further highlight the effect of tax refunds. The average installment amount per plan also increases with more people being able to afford shorter term plans. We see this trend across our client base with varying degrees of impact by client (from a few percentage points to over 300% month-over-month change).

Impact Compared to Traditional Collections

The first chart below shows cumulative collections rates for debts placed in January by one of our clients, comparing performance over time between TrueAccord and the client’s traditional collections agency partners.

Historically, collections rates for TrueAccord and traditional agencies start out relatively close (and sometimes with us trailing, as we are here) when competing head-to-head. Then about 50-60 days in, a typical shift in direction emerges where traditional agency curves begin to flatten while ours continue to trend linearly, creating an increased separation in performance over time.

In this particular case, the first wave of tax refunds hit before the 60 day mark, resulting in a sudden lift in collections on both groups. In less than two weeks, we start to see the gap widen substantially.  When we include committed dollars on top of payments (second chart), the effect is even greater as many customers continue to take advantage of flexible payment options.

The tax season impact is more pronounced with TrueAccord than with traditional agencies. While traditional collections methods can be effective, success is dependent on interactions between collectors and debtors. TrueAccord’s machine learning system creates a personalized communication and offer strategy for consumers at scale, enabling more of them to commit to paying down their debts.

Live from LendIt: TrueAccord on AI in FinTech

TrueAccord Blog

In case you missed it, our CEO Ohad Samet spoke in a panel at the LendIt Conference about the use of artificial intelligence in FinTech.

Joined by industry leaders in a propelling talk, this video is not to be missed.

 

Click here to listen to the discussion on how AI collects better than call centers (15:00), why targeting consumers in a voice that “speaks” to them is more important than ever (17:35), how machine learning personalizes consumer experience for optimal recovery rates (19:40, 36:10) and why a humanized approach works (46:00).

Live from LendIt: TrueAccord on Breaking Banks

TrueAccord Blog

This week, Breaking Banks host Brett King chatted about the ideas of debt rehabilitation with Ohad Samet, CEO of  TrueAccord, and how machine learning and AI can help people fix their credit situations.

Read more and listen to the segment in this link (starting at 35:15).

TrueAccord at the Debt Collection Field Hearing

TrueAccord Blog

The CFPB put the full video from their debt collection field hearing on their YouTube channel. Participants were allowed 2 minutes to respond, and our CEO took that opportunity (watch here).

His comments:

Thank you for the time today. My name is Ohad, I’m CEO of TrueAccord, a company that uses data and machine learning to fundamentally change the consumer experience in debt collection. We’ve been studying the new proposal since yesterday. We believe it is a big step towards improving consumer protection. Weeding out bad actors is going to level the playing field and create a race to the top that will benefit everyone.

When finalizing the rule, we think the CFPB should continue to encourage innovation in this space by providing clear and unambiguous guidelines on how to use new technology in the collections process. As a data-driven startup company, we have empirical evidence showing hat using new technologies in the collection space – text, email, social media, digitizing the dispute process – significantly improves consumer protection.

One, it improves protection measured by consumer feedback and a marked reduction in consumer complaints. Consumers understand and react to our personalized, targeted communication.

Two, it significantly reduces communication frequency; reduces call frequency by up to 95%, well under the limitations proposed in this new proposal, using channels that consumers feel are much less intrusive.

Finally, it does all of the above while meeting or exceeding traditional performance in liquidation. Nobody is going to go out of business by using new technology (and we’ll add here: versus continuing to insist on hardly-compliant calling tactics).

Again, the CFPB should considering supporting innovation by providing clear guidance for the use of technology. It will improve consumer protection and will help he industry as a whole. We look forward to cooperating with the CFPB and policymakers on this shared goal.

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!

Industry experts talk progress, offer same old solutions

TrueAccord Blog

We’re all about innovation at TrueAccord, and so were pleased to find this article from AccountsRecovery.net titled “Industry Experts Share Tips On How Agencies Should Modernize“. We were a bit surprised to find old ideas reiterated, with a focus on problems and compliance challenges rather than solutions.

This study was sponsored by Castel, a provider of solutions to call centers; furthermore, the experts interviewed have built successful businesses using call center technology. Therefore the focus on call solutions makes sense. We also understand that the TCPA is vague, that consent is an issue and that consumer attorneys are putting compliance teams on edge. As a licensed agency, we’re in the same boat. However times are changing, and it’s high time that we embrace the change.

What technology solutions is the discussion raising? Mostly solutions to manually dial phone numbers, maybe a way to place a voice mail without a ring. The discussion offers little other options other than the iterated duo: those who don’t believe in technology, and those who deem it too risky.

The school of “technology won’t work”

The collection industry has been around for decades, and many of the businesses that comprise it were started long ago by “old school” collectors. That’s why the following quote didn’t surprise us.

“We’ve looked at technology like online chat interface,” said Christian Lehr with Healthcare Collections in Phoenix. “But we haven’t moved forward because it’s a business decision, not a compliance decision. I’m not sure it is the best way to serve the consumer. Much like with emails or text messages, it can be hard to understand context. And there is a time lag for communication. We may be able to serve the consumer faster on a phone call.”

As a company that uses machine learning to develop hybrid collection systems that collect better than call centers, we understand the sentiment but beg to differ. We also have the data to back this disagreement. Not only are email, text and website more effective for collections (from 30% better to 5 times better for low balance debts), consumers prefer them. More than 50% of TrueAccord’s traffic is from mobile devices; more than 35% of payments are made on a mobile device; 25% of interactions with our system happen in non-FDCPA hours. If this isn’t a “better way to service customers”, what is?

The school of “we need permission”

Collectors have been trained by regulators and lawyers to be very compliance minded. This makes them pessimistic about any new technology that hasn’t been tested by courts and lawyers. We hear a lot of the following from agency leaders.

“The only way we can move forward and success is to embrace technologies that are available to us,” Strausser said. “We should be looking at contemporary means of communication and exploring how to pull the trigger when and we are granted approval.”

We’d like to challenge this approach from two directions.

First, when thinking about texting and emails, compliance minded collectors are worried agents on the floor are going to abuse these new tools. However email and texts can be pre-written, optimized, and sent at exactly the right moment. They actually present a much stronger compliance framework when handled properly.

Second, collectors won’t adopt new technologies without explicit approval form the CFPB, but hold on to old call center technology even though the FTC clearly signals it’s all but forbidden. Is explicit approval, which the CFPB rarely provides, the thing to stop us – or can we have an honest analysis of the FDCPA to show us what reasonably can and cannot be done? Are we holding on to old and challenged technology due to inertia?

Bottom line: progress

There is much to do in debt collection. Consumer expectations, client requirements and regulatory pressure are mounting. The right thing to do is take a hard look at the old ways of doing business, and realize that the days of hiring to fight turnover and living off thin margins are almost over. Technology can help us service consumers at scale, provide great customer service, and get results that are better than anything we’d forecast based on old paradigms. We are excited to partner with some of the biggest financial institutions in investigating this possible future.

 

How can computers collect better than humans?

TrueAccord Blog

When we started working on our patented collection engine, Heartbeat, the industry told us: you’ll fail. Computers can’t collect. Humans do. The best you can do with automated communications is to drive inbound calls, so human collectors can “seal the deal”. Fast forward 18 months since our launch, and Heartbeat beats call-center based agencies in a growing number of segments.  It turns out that computers collect debt pretty well. How come?

Debt collection is a numbers’ game. Consumers are ready and able to pay at different times, react to different stimuli, and need varying levels of support in the process. Teaching a machine to respond to these needs was historically more expensive than hiring humans, but as technology improves and compliance requirements grow, this is changing rapidly.

Humans are great at acting on intuition and responding to a changing situation. We act well based on partial information, guesses, slight changes in tone of voice and intonation. Good sales people do so without thinking. Humans are great at identifying and understanding corner cases and responding to complex inquiries. Machines can’t learn these things unless explicitly taught, and many of these skills are nuanced and complicated. Machines are “robotic”, for better and worse, and can’t have empathy.

Humans do have downsides, too. We are susceptible to biases. We make decisions based on the few past examples we remember and ones that fit what we believe. Collectors fixate on high balance accounts, worry about missing their goals, fight with their significant other and lose focus. Machines do not. Machines don’t forget a thing, and they always take as much data as available into consideration. Machines don’t talk back or get angry.

Historical attempts failed because they either tried to replace humans with even lower-paid humans, or tried to automate and get rid of humans altogether. We realized that a hybrid approach was the best one: machines make accurate decisions based on historical data when available, and learn from humans when not. Humans understand corner cases. We had to create a combination of a strong engine, and a team of experts to continuously improve it.

How does that work? When Hearbeat doesn’t “know’ what to do with a customer, it defers to our team of experts in San Francisco. They resolve the issue for the customer, and also give enough input so Heartbeat will know how to deal with the same situation in the future. The combination allows us to hit incredible productivity rates, while beating other “robotic” and passive “payment gateway” solutions.

Can machines collect? They can, and apparently many who are in debt prefer their targeted approach. When you think about the user experience, the ease of use and the automation, it’s actually not that surprising.

The dispute process isn’t working for consumers – this is how we solve it

TrueAccord has been refining the debt dispute process since our inception in 2013. Offering digital disputes streamlines the conversation between consumers and collectors while also reducing compliance risk. Engagement of consumers in debt-related discussions have decreased complaints quickly leading conversations into debt resolution.

Read the excerpt and download the whitepaper for free.

Consumers who owe debts are often confused, angry and scared – sometimes unaware of the full details of what they owe and to whom. Though the FDCPA was written to protect the average American consumer, aspects of it, including the mini Miranda and debt validation notice are written in formal legalese. As a result, consumers filing a formal debt dispute tend to skip over reading the information or misunderstand the language, leading them to miss remedies immediately available to them. For example, consumers often miss the allotted 30-day dispute window after the initial communication, during which time they can dispute the debt, while asking for additional verification.

Top Three Reasons Lenders Shouldn’t Use Debt Sales (and Two Reasons They Should)

The online lending space is experiencing tremendous interest, leading to explosive growth and an influx of capital. Many companies grow overnight, raise big rounds of venture capital; vying for a piece of an increasingly competitive market. While top-line growth and customer acquisitions are top of mind for new and existing players, the increase of competition puts a lot of pressure on margins. When focus moves to profitability and unit economics, reducing defaults has a significant impact. After optimizing underwriting criteria, many lenders turn to optimizing collection and recovery strategy.

Now, there is a limited set of tools available to collection strategists, especially considering it’s a service that’s been around for millennia. Traditionally, companies collect in-house, outsource to an agency, sue debtors, or sell their debt (or any combination of the above). Are these tools efficient? Which ones are best? And specifically – should new lenders sell their debt?

Continue reading “Top Three Reasons Lenders Shouldn’t Use Debt Sales (and Two Reasons They Should)”

TrueAccord on Forbes’ Fintech 50

Happy to see our name on Forbes’ Fintech 50, recognizing industry leaders. As Forbes puts it, “Digital disruption is going to soon affect every aspect of your money: how you earn it, save it, invest it and spend it.”

Read more here.