Buy Now, Pay Later (BNPL) plans have taken over as a popular financing option for consumers, partly due to an increase in online shopping demands during the pandemic. In 2021, Americans spent more than $20 billion through BNPL services, taking up a bigger part of the $870 billion-a-year online shopping market. From laptops and airline flights to clothing and furniture, BNPLs make it simple to pay for almost anything in small installments. Since the start of the pandemic, millions of international consumers, especially Gen Z (10-25 years old), have gravitated toward using this service. According to a study by Forbes, BNPL use among Gen Z has grown 600% since 2019. The rise of interest in BNPL is also likely influenced by increased financial uncertainty, high-interest rates and a downward trend in credit card approval. As consumers show preference for digital financial services, BNPL continues to grow and become available at more retailers.
Why are BNPLs Popular with Gen Z?
Services like Afterpay, Klarna, Affirm and others have gained a lot of popularity in recent years, especially among younger generations who may struggle with cash flow. With BNPL, the first payment is due at the time of purchase, with subsequent interest-free payments usually due within a few weeks or months.
More and more, BNPL providers are reaching these younger audiences through influencers and brands on TikTok, and the variety of goods and services you can purchase with the service continues to expand. Some popular buy now, pay later items include clothing, concert tickets, cosmetics, electronics, furniture, groceries, hotels and flights.
But, like credit cards, missing payments can result in late fees and other penalties. With Gen Z, there’s already a pattern of missing payments. A survey conducted by Piplsay showed that 43% of Gen Zers missed at least one BNPL payment in 2021.
Gen Z Favors BNPL More Than Other Generations
Debt types and payment preferences constantly change along with technology. The traditional credit card debt is being replaced by BNPL, specifically when we look at Gen Z. For one, it’s easier to be approved for a BNPL application since the process only requires a soft credit check, unlike a hard credit check that most credit card issuers require. When looking for an alternative to high-interest credit cards, BNPL installment payment plans are a popular option. BNPL consumers know upfront what will be expected of them, and the possibility for large debt build-up is replaced with a finite number of payment installments. This transparency and manageability make it easier to understand. And it’s one that has the potential to continue to evolve for the better by providing consumers with more inclusive credit and payments options.
When it comes to both luxury and essential purchases, younger consumers are more likely to take advantage of BNPL to afford them. A survey from TrustPilot found that 45% of consumers between the ages of 18 and 34 were likely to use such services for basic essentials while 54% would use them for luxury items. For those aged between 34 and 54, these results were 33% and 38% respectively. And for people aged 55 and up, the results were 16% and 24%.
Since it’s quite easy to sign up for one or more BNPL loans, the likelihood of losing track of payments or overspending is real, especially for Gen Z. According to a report from J.D. Power, about one-third of younger consumers said they spent more than their budget allows with BNPL. And since different retailers offer financing through various BNPL services, it can also be a challenge to track multiple accounts at once. This isn’t surprising as some of the younger generations do not have the financial literacy or experience that older generations have and they’re more likely to face consequences and penalties like missing a payment.
Meet Gen Z Where They Are to Effectively Recover More
The good news is that the outlook for Gen Z BNPL customers that end up with accounts in collection is different than for those who default on credit card debt. On average, BNPL debts see higher and faster repayment rates than similar-sized credit card debts. Higher engagement leads to better repayment rates. According to TrueAccord data, the percent of BNPL customers who make a payment is more than double the like-size credit card accounts at 30 days post placement and 50% higher at 90 days.
As a debt collection platform that engages digital-native consumers where they are and with a priority on customer experience, many leading BNPL providers partner with TrueAccord to address both early delinquencies and charged-off accounts. After these BNPL customers repay their loans and have a positive experience, they’re able and likely to use the service again, and this time with some experience about how it works. By using this information, TrueAccord can help find the most optimal ways to reach the younger audience and help them pay off their debt from BNPL.
Want to learn more about how to engage with consumers of any generation in whatever stage of collection they might be in? Schedule a consultation to see what TrueAccord’s digital solutions can do for your debt recovery strategy.
With more than 20 million consumer accounts serviced through intelligent, digital-first collections products, results show better repayment and happier customers than “call to collect” agencies
LENEXA, Kan., July 12, 2022 — TrueAccord Corp, a debt collection company using machine learning-powered digital recovery solutions, today announced that it has served more than 20 million customers in debt with a digital-first experience. TrueAccord’s customer-centric approach and commitment to creating a positive consumer experience is reflected in its 4.7 Google customer satisfaction rating, customer feedback, and an A+ rating with the Better Business Bureau.
TrueAccord’s collection solutions harness machine learning and digital-first communications to deliver a personalized, consumer-friendly experience for those in debt. As is the nature of machine learning, the system dynamically analyzes and refines the approach used for each customer based on their interactions combined with years of previous engagement data in order to deliver the most effective communication treatment. The patented system, HeartBeat, which is now 20 million customer engagement interactions strong since its 2013 inception, continues to optimize with each new customer interaction.
“Machine learning is only as good as its data sources, and with more than 20 million accounts’ worth of engagement data that informs the HeartBeat system, we’re confident that the experiences being delivered are as streamlined and as aligned to consumer preferences as possible,” said Mark Ravanesi, CEO of TrueAccord Corp. “As a mission-driven company, we prioritize creating better experiences for consumers in debt, and based on our high customer satisfaction and repayment rates, it looks like we’re making significant progress.”
Powered by TrueAccord’s industry-leading tech stack, the product suite includes Retain, a client-branded early-stage consumer engagement platform for managing pre-charge off debt, and Recover, a full-service debt collection solution. Key benefits of both products include a simple, intuitive and effortless-to-use digital platform leading to great user experience, constant A/B testing and optimization to reduce friction and boost conversion rate, infinite scalability, and second-to-none channel deliverability.
While holding customer experience as a priority, TrueAccord products continue to prove more effective than competitors, as evidenced by client case studies showing 25-35% better performance on accounts using Recover when compared to those placed with traditional agencies, and recovering $17 million in delinquent bills with a 44% paid in full rate using Retain.
To learn more about TrueAccord and its digital-first recovery solutions, visit www.TrueAccord.com and follow on Twitter and LinkedIn.
About TrueAccord
TrueAccord is the intelligent, digital-first collection and recovery company that leaders across industries trust to drive breakthrough results while delivering a superior consumer experience. TrueAccord pioneered the industry’s only adaptive intelligence: a patented machine learning engine, powered by engagement data from over 20 million consumer journeys, that dynamically personalizes every facet of the consumer experience – from channel to message to plan type and more – in real-time. Combined with code-based compliance and a self-serve digital experience, TrueAccord delivers liquidation and recovery rates 50-80% higher than industry benchmarks. The TrueAccord product suite includes Retain, an early-stage recovery solution, and Recover, a full-service debt collection platform.
As we wrap the second quarter and first half of 2022, we’re watching some key factors impacting consumers and the credit industry and making sense of what it might mean and how to prepare your business.
Key Factor 1: Inflation
Despite robust wage growth (average hourly earnings up 5.5% over last year), consumers are seeing those gains eroded by an 8.6% inflation rate in May, the highest in 40 years. The latest increase was driven by sharp year-over-year rises in the prices for energy (+34.6%), groceries (+11.9%) and shelter costs (+5.5%), an indicator of broad inflation pressures. In fact, rental prices across the nation hit a new record high—for the 15th month in a row, according to a recent Realtor.com report. Rents climbed 15.5% annually in May, to hit a median of $1,849 in the nation’s largest metropolitan areas.
As things get more expensive, cash flow gets trickier to manage. When consumers stretch their budgets to account for higher prices, cash previously used for discretionary spending and saving disappears. Case in point: U.S. inflation-adjusted consumer spending rose in April by the most in three months, while the personal savings rate dropped to 4.4%, the lowest since 2008 and down for the fourth straight month. This indicates that many consumers are spending more and saving less.
And what about the people who have been living paycheck to paycheck and haven’t been able to accumulate savings? According to a recent study, this group includes 70% of millennials, but also 51% of Gen X and 54% of baby boomers and seniors. While some consumers are able to dip into their savings at a time like this, for many others it means looking for new lines of credit, which could be challenging because of…
Key Factor 2: Interest Rate Hikes
After another rate hike in June, the federal interest rate sits at 1.5-1.75% with the central bank expected to deliver more 50+ basis point rate hikes this year. While the markets are pricing these into forecasts, consumers will feel them more acutely in a number of ways.
A hike in the federal interest rate prompts a jump in the Bank Prime Loan Rate (prime rate), the credit rate that banks offer to their most credit-worthy customers and off of which they base other forms of consumer credit like mortgages and consumer loans. This means that those looking to open a new line of credit – as a stopgap for insufficient cash flow or otherwise – will pay more for the capital required to make purchases, with unfavorable terms that could lead to even more problems down the road.
And we’re already seeing increased use of credit cards to deal with inflation. The Federal Reserve’s monthly credit report found that revolving credit jumped nearly 20% in April from the previous month to $1.103 trillion, breaking the pre-pandemic record. Credit card balances are also already up year over year, reaching $841 billion in the first quarter of 2022, and are expected to keep rising, according to a report from the Federal Reserve Bank of New York. For the estimated 55% of Americans who carry credit card debt month over month, paying off balances will get even more difficult for those not making minimum monthly payments. And opening a new credit card line may prove difficult – many lenders are or will be changing their strategies to stave off the looming threat of…
Key Factor 3: Rising Delinquencies
We all knew this was coming. Missed payments on certain loans are already on the rise. The Wall Street Journal reported that borrowers with credit scores below 620 (subprime) with car loans, personal loans or credit cards that are over 60 days late are “rising faster than normal.” And according to Experian’s Ascend Market Insights for June, there was an uptick in overall delinquency rates in May, with 30+ day past due accounts up 2.14% month over month, driven mostly by secured auto and mortgage loans.
The risk of delinquencies increases across the board of loan types when economic factors require consumers to stretch their dollars. When consumers spend more of their income on necessities, the surplus available for other expenses, like existing credit card or personal loan balances, dwindles, forcing consumers to prioritize payments. If your product or service is not essential to daily life, you may get pushed down the priority list and eventually dropped altogether as consumers try to make ends meet. And unfortunately for consumers, missing payments is also getting more expensive, especially on variable-rate products, and likely to compound an already financially sticky situation.
Key Factor 4: Regulatory and Compliance Guidelines
For those tasked with lending or recouping consumer loans, there are more regulatory considerations to keep in mind than before – debt collectors are under more scrutiny while lenders have similarly felt the regulatory squeeze with a number of new rulings in the past few months. Broadly, the Consumer Financial Protection Bureau (CFPB) invoked a legal provision to examine nonbank financial companies that pose risks to consumers in an effort to help protect consumers and level the playing field between banks and nonbanks, meaning if you’re offering any financial services to consumers, you may be under the microscope.
Notably for lenders, the CFPB published an advisory opinion affirming that the Equal Credit Opportunity Act (ECOA) bars lenders from discriminating against customers even after they have received a loan, not just during the application process. Further, if you’re a lender using complex algorithms or machine learning for underwriting, the federal anti-discrimination law requires you to explain to applicants the specific reasons for denying an application for credit or taking other adverse actions, and “the system said so” is not a valid excuse.
For collectors, the CFPB enacted Regulation F late last year, and since its effective date in November has logged 2,300+ complaints* around debt collection communication tactics, which it aims to regulate, causing debt collectors to rethink their contact strategies or face repercussions. The organization also issued an advisory opinion to reduce “junk fees” charged by debt collectors and took stands against a number of repeat offenders this quarter, underlining their intent to step up consumer protection.
What to do?
While we aren’t sounding the alarms just yet, it’s certainly looking like a risky market for lending amid a tightening economy and a bleak outlook on consumer finances (many are predicting when, not if, the next recession will happen, or maybe it’s already here). And don’t forget that student loan repayments are set to resume in Q3, adding even more financial responsibility back to many consumers’ budgets. If you’re a lender, you’re likely rethinking your underwriting strategy and starting to consider the very real possibility of what happens if/when your customers start defaulting. If you’re in charge of recovering debt, you may be readying for an uphill battle.
As you prepare for what’s to come in consumer lending and debt, there is an important reality to keep in mind: Your target customer has changed. Consumer motivation for, ability to acquire and feasibility of keeping up with payments for most types of loans is very different today than it was a year ago. And that customer’s profile changes again when they start missing payments due to financial stressors.
The best thing to do now is to ensure you have an effective collection strategy in place, preferably one that prioritizes customer experience to protect your brand, and necessarily takes compliance into account to protect your business. A technology-driven solution can not only help lenders handle an influx of delinquent accounts, but can help to preserve valuable relationships with customers as well. But not all tech is created equal – we took machine learning a step further and built HeartBeat, our patented decision engine, designed to reach every customer based on their unique situation so you won’t miss a single recovery opportunity. Learn more about how it works in our latest eBook.
*Data is from the Consumer Financial Protection Bureau’s Consumer Complaint Database, for the time period 11/30/21 – 6/24/22.
Historically, debt collectors have been depicted as hostile, intimidating or downright rude – and over the years they’ve confirmed those stereotypes through aggressive phone calling and deceptive tactics. But to what success and at what cost? We know there’s a better way. The idea of compassionate, considerate consumer communication is behind TrueAccord’s approach to debt recovery and drives our innovation, and based on what we’ve seen, we believe there’s a lesson to be learned for others in the debt collection space.
In collaboration with OnePoll, TrueAccord recently surveyed consumers about their financial regrets and found that 63% of respondents had some amount of money in collections. While 88% of respondents didn’t have any past experience with accounts in debt collection to report, the 12% that did weren’t so lucky, and their experiences were pretty awful. We don’t like to hear about consumers being treated badly and reading these consumer comments brings to light the problem we’re trying to solve.
So what are consumers’ complaints about their experiences with debt collectors? Here are just a few:
“A million phone calls a day.”
“I was disgraced in a public place.”
“Relentless and rude, judgemental and uncaring.”
“Terrible experience, they were perfectly nasty.”
“They are mean and evil and clever and make you feel terrible about yourself.”
“They get angry when I don’t have the money to pay back in time.”
We’re here to flip the script. At TrueAccord, we don’t call consumers to collect past due debts, and we certainly don’t threaten or harass. By using a digital-first communication approach and friendly, humane messages, we actually connect with consumers and they feel empowered and motivated to pay.
Don’t believe us? Here’s some real-life customer feedback from people TrueAccord has helped out of debt:
“Thank you for your patience and understanding!”
“Love the email communication and the ability to pay online.”
“I actually looked forward to making payments because I felt there was a sense of mutual respect between myself and TrueAccord. It felt good to take care of a lingering debt.”
“Thank you for your kindness, patience and professionalism in the wake of hardship.”
“It is amazing to be able to feel good about paying your bills. You helped me all the way. No pressure.”
“My experience with TrueAccord was seamless. Truth be told, it’s the first time I’ve ever enjoyed time spent with a debt collection company!”
So far the kindness approach has worked for TrueAccord – with more than 16 million customers served, we pride ourselves on our 4.7 on Google reviews, A+ rating with the BBB, and overwhelmingly positive customer feedback, not to mention our industry-leading recovery results. We’re proving that when you treat consumers with respect and kindness you can actually achieve better results for your business and customers.
Interested in finding out more about how outbound calling for debt collection is a thing of the past, our approach to digital-first debt collection and how it can work for your business? Check out “Outbound Calling Doesn’t Work, Here’s What Does” for more.
Delinquencies are a predictable reality for any business that handles payments, but the most efficient and effective way to recover delinquent funds isn’t always as predictable.
A recovery team could theoretically chase down every last delinquent dollar. But it would soon reach the point at which the operational cost of the effort – and the associated legal and reputational risk – would cut into profitability.
With so many factors involved, it can be difficult to even know where to start…
The planning process should start with an in-depth understanding of what makes a world-class recovery strategy in today’s digital-first age, a look at the big picture for your specific industry all the way down to your detailed metrics, and KPIs that should be steering your strategy. Consumers expect a seamless, personalized experience in every financial transaction, and your recovery operations can continue to deliver that all the way through the customer journey when you have the right strategy in place.
There is no one-size-fits-all when it comes to debt recovery and collection, but getting started doesn’t have to be daunting when you have the right resources to get you going.
Beyond Best Practices and into Actionable Tactics
Go beyond general best practices and start plugging in your own data with the tools inside our new Recovery & Collection Starter Kit. We have assembled guides, calculators, cheat sheets, and more to provide the frameworks and metrics for your organization to get started architecting the right recovery strategy for the long run.
Each starter kit includes:
World-Class Recovery Guide — pick your industry edition!
Manage delinquencies without sacrificing consumer experience
Balance performance with operation metrics and consumer-focused KPIs
Compare, contrast, and evaluate in-house vs partner collection strategies
Cheat Sheet: Top KPIs for Your Recovery Operations
Differences between traditional debt collection metrics, digital engagement tracking, operational KPIs, and more
New consumer-centric KPIs for today’s most effective recovery strategy
How to calculate profitability of a collection operation using operational metrics
Interactive Recovery & Collection Calculator
Enter your business’s KPIs to measure the profitability of your recovery
Discover opportunities to improve the reach, resolution funnel, and cost effectiveness of your recovery operation
Scenario plan how much in additional revenue and cost savings the shift to an intelligent, digital strategy can drive for your business
Choosing a Recovery Partner: Top 6 Questions to Ask
Detailed questions on communication, technology, risks, and more
Why each question matters for both profitability and consumer-experience
Based on each question, what to look for in a potential partner’s responses
These tools will teach you how to maximize profitability by efficiently recovering money lent to customers or members—while simultaneously maintaining consumer loyalty. Now is the time for businesses across verticals to embrace a disruptive, obsessively consumer-centric mindset for recovery and collection, and experience the results of this new approach.
Most Americans are in enough credit card debt, they would do anything to go back in time and change the outcome of their financial situation, according to new research.
A survey of 2,000 general population Americans examined how they tackle their financial hurdles and found the average person owes $3,083 to credit card debt.
Many respondents shared their financial regrets over the years, from not setting up a retirement plan when they were younger (51%), to not paying close attention to their credit score (43%) and buying goods that were too cheap (41%).
Three-quarters (76%) have made an average of five financial decisions they regret in the past five years. And those who are eager to get out of debt (76%) have already planned their “debt free” celebrations once they finished paying all their dues.
Conducted by OnePoll and commissioned by TrueAccord, a digital debt collection company, the study revealed 77% of respondents have lost an average of nine hours of sleep per week due to their financial woes.
When they’re in a financial crisis, 63% of people will turn to someone they trust — with half turning to their parents, 48% to their best friend and 46% to their primary bank.
Overall, 87% of people credit their financial “wins” to the people who had given them advice, while seven in 10 (71%) said they’ve learned from others’ financial mistakes.
“There are close to 80 million Americans with past due debt and most want to pay it off and move on with their lives. But that is exceedingly difficult, especially in a debt collection system that treats consumers poorly and is more interested in process than simplifying debt repayment,” said Ohad Samet, founder of TrueAccord. “What we see more and more are consumers in debt who want to pay off their balances but are met with challenges of communicating with collectors, financial literacy and budget considerations that create roadblocks to being debt-free.”
For many Americans, recovering from financial regrets starts with their credit score. The average person doesn’t understand the importance of their credit score until they’re 28 years old, but believe it’s better to start building a credit at 25 years old.
Over four in five (84%) said maintaining a good credit score is important to them, with nearly as many (81%) saying it’s even more important than their social lives.
Respondents also recalled the feelings they have when they see their credit card statements and when they’re about to make a payment. When seeing their statements, 31% said they feel confident and 24% feel fear.
On the other hand, people feel satisfaction (36%) and happiness (22%) when making a payment.
While 38% don’t plan on taking out any kind of loans in 2022, many are already making plans for loans in the year ahead — including credit card loans (34%), personal loans (33%) and mortgages (30%).
“For those who are able to repay their balances, there may still be a longer-lasting impact to their credit score that can be difficult to remedy and further inhibit financial stability,” added Samet. “People will continue to borrow money when they need it, but what’s important is that they are informed on loan or credit terms and have a financial plan in place to ensure they’re making smart spending and repayment decisions. At the end of the day, though, getting into collections is often the result of trauma — loss of work, a healthcare crisis, and so on — many of them unexpected.”
TOP 10 FINANCIAL REGRETS AMERICANS HAVE
Not starting a retirement plan while I’m young 51%
Not paying attention to my credit score 43%
Buying cheap goods 41%
Defaulting on payments and ending up in debt collection 41%
Overspending on credit cards that I can’t afford to repay 38%
Measuring the success of a recovery strategy goes beyond just the dollars and cents recovered. Yes, the goal of a recovery operation is to maximize profitability by efficiently recovering money lent to consumers, but other key factors — like consumer experience and retention — are also important in evaluating the success of your business.
A recovery team could theoretically chase down every last delinquent dollar, but doing so is often not worth the operational cost of the effort, and the associated legal and reputational risk can cut into profitability.
In this blog post, we’ll share the most important key performance indicators (KPIs) for collections and recovery — and how you can use them to create a seamless, scalable, and world-class recovery practice.
Meet the Metrics
Whether looking at portfolio performance, operational profitability, or consumer experience, different KPIs play a role in measuring the success of a recovery strategy. Collectively, these metrics make up the “language” of recovery and collection — helping organizations understand the fundamentals of their operation.
Here are a few of the most integral metrics to know:
Accounts per Employee (APE) or Accounts to Creditor Ratio (ACR): the number of delinquent accounts that can be serviced by an individual recovery agent
Net Loss Rate or Net Charge Off Rate: measures the total percent of dollars loaned that ended up getting written off as a loss
Delinquency Rate: total dollars that are in delinquency (starting as soon as a borrower misses a payment on a loan) as a percentage of total outstanding loans – often an early warning sign on the total volume of delinquent debt
Promise to Pay Rate: the percentage of delinquent accounts that make a verbal or digital commitment to pay
Promise to Pay Kept Rate: the percentage of delinquent accounts that maintain a stated commitment to pay
Roll Rate: the percentage of delinquent dollars that “roll” from one delinquency bucket to the next over a given period of time – provides visibility into the velocity with which debts are heading into charge off
Profitability of a Collections Operation Formula: R x ResF x E
R [Reach]: percentage of consumers in delinquency can you actually reach
ResF [Resolution Funnel]: how effectively you can convert initial contact with a consumer into a commitment to pay – and ultimately, a payment promise kept (see Promise to Pay Rate and Promise to Pay Kept Rate)
E [Efficiency]: calculation of what the “unit economics” of your collection are and how much it costs, on average, for every account that you rehabilitate
The following diagram highlights the relationship between these core operational metrics of a recovery strategy and portfolio-level outcomes.
In the hyper-competitive financial services space, consumer experience is a source of competitive advantage. That’s why it stands to reason that alongside the “traditional” metrics we see above, forward-looking fintechs and lending organizations should include KPIs that measure the value of consumer experiences:
Net Promoter Score (NPS): how likely a consumer is to recommend a given brand after an experience with a brand’s collection organization
Customer Retention Rate: how likely a consumer is to be reacquired by a given brand after his or her delinquent account is rehabilitated
How to Make the Most Out of These Metrics
So you have traditional metrics and consumer-focused KPIs, but how do you use it all? Managing performance with operational and consumer-centric metrics requires understanding the economics of recovery. Successful organizations will use the data to measure trends against the company’s own historical data, evaluate partners and strategies, and understand the big picture.
Understand the Big Picture
Visualize the relationship between operational metrics and portfolio-level outcomes. Conduct scenario planning exercises (e.g., “if we were able to improve the reach of our efforts by 25% through digital outreach, we would be able to reduce our net loss rate by 750 basis points”).
Measure Trends Longitudinally
Benchmark against a company’s own historical data as the collection team rolls out new strategies and tactics (e.g., “we boosted our promise to pay kept rate by 350 basis points relative to the previous vintage with pre-payment date reminders”)
Evaluate Partners
Assess potential collection vendors against a standard slate of metrics and KPIs (e.g., “of the three vendors that we evaluated for our collections, which one led to the greatest reduction in roll rate?”)
Moving Towards World-Class Recovery
Understanding collection KPIs and how to use them is a critical part of creating an effective recovery strategy — learn about all the components of a successful collection operation in our new ebook, the Guide to World-Class Recovery. Available for download now, this ebook provides the tools and frameworks to ensure that you’re architecting the right recovery strategy for your company for the long run.
PORTLAND, Ore., (February 7, 2022) – Sila Inc., a fintech software platform that provides payment infrastructure as a service, today announced that it partnered with TrueAccord, the leading debt collection company offering intelligent, digital-first collection and recovery solutions, to make it easier for Sila’s customers to use TrueAccord’s products and services. How to deal with delinquent and defaulted accounts is a key element that fintechs need to have in place as part of their overall management of funds. Using a patented machine learning engine and engagement data from millions of customers, TrueAccord delivers a personalized, self-serve experience that drives consumer engagement and industry-leading results. Meeting consumer preference for digital-first services and to cut through the noise and empower customer self-service and inbound communication, TrueAccord uses a range of channels including email, SMS, voicemail drop, and more.
Since its inception, Sila has been laser-focused on providing industry-leading API solutions. As importantly, Sila has been steadily growing its partner network to augment its offering by anticipating additional functionality that Sila customers will need to successfully build their businesses. With the recent addition of TrueAccord, Sila is on path to have agreements with over 40 specialist service providers signed by the end of this quarter.
“Sila is proud to welcome TrueAccord as a partner. We know that our customers will benefit from this key addition to our partner network and from a closer relationship between our two organizations,” said Shamir Karkal, CEO and co-founder, Sila Inc. “Like many of our fintech customers, TrueAccord was founded by an individual who had a sub-optimal experience with a traditional financial institution and decided to do something about it. That’s a mindset that is very close to our own because we started Sila around the idea to provide payment services that allow entrepreneurs to build the new financial world they have in mind.”
“We have worked with more than 16 million consumers on their journey to pay off their debts, and we use that data and feedback to understand how and when to best engage consumers to facilitate repayment. By allowing consumers to create flexible payment plans and by offering modern, digital-first communication channels, we are changing the landscape of debt collection from hostile and harassing to empathetic and helpful,” said Mark Ravanesi, CEO of TrueAccord Corp. “We are looking forward to bringing to bear our significant expertise for the benefit of Sila’s customers and consumers.”
About Sila
Sila is a fintech software platform that provides payment infrastructure as a service, a business-critical element for all companies that need to integrate with the US banking system and blockchain quickly, securely, and in compliance with applicable US regulation. Sila offers Banking, Digital Wallet & ACH Payments APIs for Software Teams. The firm was recognized as a ‘2021 best place to work in financial technology’. Sila is headquartered in Portland, Oregon. For more information go to www.silamoney.com
About TrueAccord
TrueAccord is the intelligent, digital-first collection and recovery company that leaders across industries trust to drive breakthrough results while delivering a superior consumer experience. TrueAccord pioneered the industry’s only adaptive intelligence: a patented machine learning engine, powered by engagement data from over 16 million consumer journeys, that dynamically personalizes every facet of the consumer experience – from channel to message to plan type and more – in real-time. Combined with code-based compliance and a self-serve digital experience, TrueAccord delivers liquidation and recovery rates 50-80% higher than industry benchmarks. The TrueAccord product suite includes Retain, an early-stage recovery solution, and Recover, a full-service debt collection platform.To learn more, go to http://www.trueaccord.com.
With digital lending via neobanks and fintechs on the rise, consumers have more options than ever for obtaining loans. There are a lot of considerations for these digital financial providers when building their business models, but one important and often-overlooked strategy is recovery for delinquent accounts. We sat down with TrueAccord’s Chief Growth Officer, Sheila Monroe, who has held numerous executive-level positions at TrueAccord on top of a multi-decade career in collections, to learn more about the economics of collections and what new lending players should look for when considering a collections solution.
What are the economics of collections metrics for delinquent accounts?
There are a number of metrics to pay close attention to in the management of delinquent accounts. These can be separated into two main categories, portfolio metrics and operational metrics.
Portfolio metrics address the health of the entire portfolio or a defined segment of a portfolio (a certain vintage or a certain risk group or even a particular product). For a U.S.-based lender following GAAP accounting, the lender’s net loss rate (or net charge off rate) is the ultimate metric. It tells investors and management what percent of the portfolio is lost as a result of non-payment, which is a key metric in the overall health of the business. Private equity and venture capital firms, along with companies who invest in a lender’s receivables, will be most interested in a predictable loss rate in line with investment objectives.
Operational metricsare also important in managing delinquency and losses. Operationally, lenders should understand how well consumers follow through on payment plans or promises by monitoring a promise kept rate as well as what percent of payments cover the total payment due to cure the account. For measuring efficiency, lenders look at the ratio of delinquent accounts per collection employee, often referred to as accounts per employee (APE) or accounts to collector ratio (ACR), as well metrics like promises and dollars collected per paid hour of operations. Many also look at the cost to collect a dollar or the cost per delinquent account.
What are credit loss provisions and why are they important to financial providers?
Lending institutions will inevitably have loans that go into default, and this is planned for in their financial modeling. For lenders, even the largest international banks, loan losses are the largest expense line in the budget so it’s important to prepare for those losses. When money is loaned, whether in a 30-year mortgage, a 5-year car loan, or a revolving credit card, some of those accounts will go past due, and some will fail to pay long enough that they get charged off as bad debt (credit loss), and it can take years to see that happen.
But when account balances do get charged off as bad debt, the lender must have enough money “reserved” to absorb those losses and still be able to operate. So any lending company with investors will need to have a reserve for losses that shows up in their balance sheet. Depending on market conditions and actual loss rates, these reserves can be adjusted upward or downward periodically to ensure what is commonly referred to in financial services as “safety and soundness”. This is even more important if a lender takes consumer deposits to fund any of their lending.
What is a roll rate in debt collections?
The roll rate is the sum of account balances that moves from being in one stage of delinquency to the next. For example, if 500 accounts with balances totalling $600,000 are one month past due (often called bucket 1 or one down), and the next month there are 150 accounts with balances totalling $125,000 that are 2 months past due, there was a 20.8% roll rate from buckets 1-2. Roll rates can also be calculated based on number of accounts, but that metric is rarely used in a performance analysis.
How do lenders and debt collectors use roll rates?
Roll rates are primarily used to forecast future charge-off levels, to develop sophisticated risk scoring models to be used in underwriting or collection strategy, and to evaluate the effectiveness of a collection strategy or process. The collection process is designed to effectively intervene when consumers miss payments and to encourage and enable them to get back on track quickly. The longer loans and credit cards go unpaid, the more they accumulate late fees and finance charges and become much more difficult to get back to good standing.
What are “good” roll rate ranges in debt collections?
This can be tricky to determine because portfolio objectives and type of debt come into play. For example, some products might be aimed at riskier customers, those with thin or no credit profiles, or those who have lower credit scores and it would be disadvantageous to compare those roll rates to those of a prime product. It’s important to understand the objectives of a lending product when evaluating performance. Depending on their objectives, some lenders target high-risk customers and have high credit losses, padded by high fees, while others target prime borrowers and enjoy low losses.
If a lender has been in business long enough, they can benchmark roll rates against prior years, but need to account for any changes to underwriting and macro economic conditions. For example, banks can compare delinquency and charge off rates to other banks or look at performance by vintage, meaning how are all the accounts that were opened during a specific period of time performing. Peer benchmarking can be difficult for Fintech and other young lenders who often don’t have a base of publicly traded competitors who must report these key metrics in shareholder reports, but there are some consortium groups that can help (Auriemma Roundtable Group).
Roll rates are early indicators of collection effectiveness and often require more than a glance to understand if they are good. Often looking at connected roll rates or flow rates is more telling. For example, a high roll rate one month may be the product of a short billing month, while looking at a broader metric like debts that rolled from current to 3 months or those that went from 4 months to charge-off, might be a more telling indicator.
What are “good” ranges of cost to collect?
Generally, collection costs include the cost of collection staff wages and fringe benefits, software licensing, management overhead (for quality monitoring, training, supervision, workforce management and others), communication costs (letter and postage, telephony, SMS and other costs), equipment, supplies, scrubs and skip tracing information, and premises (leases and maintenance). If the collection function is completely outsourced, a lot of these costs will be wrapped into the cost per hour or cost per FTE being charged. I’ve seen costs on a per account basis range anywhere from $4.50 to more than $16 for unsecured consumer debt, depending on the strategy, the type of portfolio, and the location of the operation.
As a lender, it’s important to know what you are optimizing for. Spending more to keep losses low may seem like a no brainer, but there is a point of diminishing returns and, worse, a point in which more collection activity drives disproportionate costs in the forms of complaints, litigation, customer attrition and reputational damage. It may make sense for your business to manage delinquency and charge off levels near your industry’s benchmark or even higher, but put more thought into customer retention and how to get them using your product again once their finances have stabilized.
Why should a company that’s new to lending have a collections partner?
New lenders go into business to lend money. They start with a target audience and product market fit, and tailor underwriting to their growth aspirations and customer value proposition. That is absolutely what any new lender should focus on. But often lenders are either naive about the impact of losses (maybe they think their underwriting will be so good they don’t need to think about collections), or they don’t have a full appreciation of how managing losses and taking advantage of recoveries will enable them to lend more money and retain more of those hard-earned customers. Having a trusted collection partner can allow the lender to focus on what they do best while reaping the benefits of sound practices to manage delinquency.
How do you measure success?
Ultimately, it will be a combination of your lending strategy (did you lend to the right people) and your collection strategy (how well can you get customers back on track after missing a payment) that will influence portfolio metrics. But none of these metrics will drive outstanding performance in isolation. To be effective, it’s important to understand a lender’s reach into the delinquent customer base. What percent of customers are actually engaging with the collection effort? A calling strategy results in about 2% of phone calls reaching a “right party” (the person responsible for paying) and about 1.5% resulting in a payment.
More lenders should look at engagement metrics – what percent of their delinquent customers actually engaged with some form of communication. In a purely digital strategy it is easy to measure email open and click rates, and SMS engagement rates as strong top of the funnel indicators. For Fintech we see a 46% email open rate and 2.5% click rate, with SMS delivering click rates between 25-32%. This is substantially higher engagement than what can be achieved in a calling environment and is better received by consumers.
What should a digital lending company consider when choosing a collections partner?
Companies new to lending are originating loans, and therefore the entire customer relationship, online. Their customers had a digital experience to begin the relationship and they will expect a digital experience throughout their relationship with the lender. With that in mind, some things a digital lender should consider when choosing a collections partner include:
Does the collection company primarily communicate with my customers in their channel(s) of choice? Many collection companies will say they use email, but it is often not the primary mode of communication and can amount to less than 10% of an otherwise heavy, offensive phone calling strategy.
Are customer communications personalized when it comes to the channel being used, the time of day the communication occurs, the content and tone of the message or do they segment broad groups of customers for a one size fits all treatment strategy?
Does the collection company leverage any machine learning that could augment what I already know about my customers based on my internal data alone?
What process does the collection company have for continuous improvement enabled by a strong champion/challenger testing capability?
How much execution risk does my collection partner expose me to? Operations that rely on more collection agents will carry more risk exposure. Poor agent attendance or high attrition will impact expected coverage. Poor quality or agent errors across a varied labor pool will impact collection results and pose compliance risks. Cultural bias or unneutralized accents of offshore agents have been shown to result in lower contacts and lower average commitments than more expensive on-shore agents.
If you are outsourcing to an agent-intensive provider, make sure you understand what drives the agent incentive plan. Agents interested in making incentives don’t always have your customers’ best interests in mind.
Collections-as-a-Service offering is seamlessly integrated to service customer debt accounts while delivering consumer-friendly, digital-first experiences
LENEXA, Kan., Jan. 5, 2022 — TrueAccord Corporation, a debt collection company offering ML-powered digital recovery solutions, today announced a partnership with Synapse as an expansion of its Collections-as-a-Service offering. The partnership will bring the best-in-class collection and recovery capabilities of TrueAccord to Synapse’s fintech partners and customer base, integrating collections into the customer-centric fintech ecosystem.
Given the rapid growth in fintech lending and banking-as-a-service (BaaS) and the steady rise in delinquencies, consumers are expected to fall behind on their payments and require assistance to repay their debts. Synapse, a BaaS platform that provides the infrastructure and leverages APIs to enable companies to quickly build and launch best-in-class financial services, selected TrueAccord to join their growing tech stack of fintech partners with similar approaches to financial services and customer experience to address the need for debt collection when it arises.
“We chose to partner with TrueAccord to add debt repayment services to Synapse’s BaaS ecosystem, because it aligns with consumer preference for a frictionless, digital-first financial services experience, especially when they fall behind,” said Sankaet Pathak, Founder & CEO of Synapse. “We want to ensure our customers have a good experience across all aspects of their financial journey, and providing that in collections is just as important for customer retention as it is in origination and servicing.”
Through an API integration, TrueAccord’s Recover debt collection solution will service charged-off debt accrued through Synapse’s lending platform. This will expand the Synapse fintech suite to follow a customer from loan origination to application and all the way through to collections, if needed. Additionally, TrueAccord’s Retain solution for early-stage delinquencies will be available on a referral-basis to the fintech partners in the Synapse ecosystem as an option to help get customers back on track with payments before being sent to collections.
“As a fintech company itself, TrueAccord knows the fintech business and customer better than most, especially in debt collection,” said Mark Ravanesi, CEO of TrueAccord Corp. “We speak the fintech language of consumer communication preferences, data and machine learning-driven technology, and no credit bureau reporting, offering customers a streamlined and hassle-free way to settle their debts and get back on track with their finances.”
With open banking on the rise, more companies will look for ways to incorporate collections into their service offerings. TrueAccord’s industry-leading Collections-as-a-Service product will enable fintech innovators to scale their businesses and offer best-in-class recovery with a customer-centric approach.
To learn more about TrueAccord, its API and built-in collections solutions, click here and follow @TrueAccord on Twitter and LinkedIn.
About TrueAccord
TrueAccord is the intelligent, digital-first collection and recovery company that leaders across industries trust to drive breakthrough results while delivering a superior consumer experience. TrueAccord pioneered the industry’s only adaptive intelligence: a patented machine learning engine, powered by engagement data from over 16 million consumer journeys, that dynamically personalizes every facet of the consumer experience – from channel to message to plan type and more – in real-time. Combined with code-based compliance and a self-serve digital experience, TrueAccord delivers liquidation and recovery rates 50-80% higher than industry benchmarks. The TrueAccord product suite includes Retain, an early-stage recovery solution, and Recover, a full-service debt collection platform.
TrueAccord is a machine-learning and Al-driven 3rd-party debt collection company that is reinventing debt collection. We make debt collection empathetic and customer-focused and deliver a great user experience.
Our digital-first approach to debt collection creates a cycle of collections growth:
1. Improve the perception of the industry
2. Provide a personalized experience
3. Build brand equity and collect
