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.  

Continue reading “It’s lonely in the Debt Collection Startups box…” →

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.

Continue reading “Common pitfalls of collection strategies: part three 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.

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.

News hit this week that Synchrony bank increased its charge-off guidance to 4.5-4.8%. This is expected, as multiple banks expect higher charge-off rates due to the change in credit cycle and deteriorating consumer trust. The “good years” of cheap credit fueled by low (and negative) interest rates seem to be over, and lenders are tightening their belts.

We see that with the unfortunate crunch in interest in Marketplace-style consumer loans, but expect the effect across multiple types of loans. Synchrony, whose portfolio skews towards lower FICO-score customers, may just be the canary in the coal mine. Shares of other large issues tumbled accordingly this week, although not to the same magnitude as Synchrony’s.