Customer Engagement and Collections Trends in the Debt Recovery Industry

In keeping with an increasingly customer-centric approach towards collections taken by the debt recovery industry in the UK, leading agency Wescot has worked to ensure the development of enhanced arrangement management processes. The improved processes will help make certain that reasoning behind defaults is understood and also to enable appropriate action when needed to maintain an affordable repayment plan. The improved arrangement management will help determine what should be done in a given situation, taking into consideration any changes that have occurred in the circumstances of the customer.

A review of Wescot’s collections performance over the 12-month period before September 2013 demonstrated a significant increase in overall collections delivery from prime banking stock across that period. The improvement, in excess of 15%, occurred although the market has been experiencing economic and regulatory pressures that might have been expected to induce a downward trend. The shape of recovery curves is being altewescotred by customer-centric and other practices that have recently come into use in the debt recovery industry. There has been a greater focus on delivery of top-quality customer contacts, alongside investment in improved and ongoing processes of arrangement management. There has also been more of a focus on productive customer engagement and working on delivering repayment plans that are sustainable.

While lower contact conversion rates have been observed, with a coinciding reduction in initial break-in delivery, this has not prevented uplift in collections delivery trends. The uplift can be credited in part to improved stick rates and the benefit built from them in the long run. That in turn provides an explanation for the significant growth in established, paying stock’s value that Wescot has recently observed. The current collections trends indicate the increasing embedded value of recoveries stock. A larger number of truly sustainable repayment plans are being established and managed in the industry, driving that increase in value.

The long-term benefits of positive customer engagement is shown by these recent results, with more appropriate outcomes for lenders and individuals emerging from a compliant collections approach. Debt collection agency investment in analytical capability as well as technology is vital to the success of this approach, as it provides for the optimisation of positive contacts. Further, organisations should invest in agent development so that customer interactions can be of a consistently high quality. A strong long-term collections curve is likely with a sustainable cash flow coming from repayment stock.

Debt Collection Agencies and Effective Customer Interaction

wescotGoneaways have become more difficult to identify for debt collection agencies, complicating tracing methods utilised in order to access and interact with customers. It used to be the case that all goneaways could be identified quite easily and treated equally, but major changes in the industry and in housing have made this much more difficult. The industry is facing the challenge of ensuring that organisations avoid repeated, contact with third parties to whom the relevant accounts do not belong. Such incorrect contact has significant consumer impact and this is among the issues Wescot, along with other ethical debt collection agencies, wish to resolve.

One problem facing the industry is the tendency of many organisations to regard trace activity as a mere exercise in data gathering and not as an investment. This attitude has led several organisations to choose cheap and quick approaches to trace and to miss out on the benefits, to the consumer and organisation, of approaching trace with more care and attention. The necessity of finding solutions that enable ethical and effective customer interaction, in particular with no-contact segments, is becoming increasingly pressing within a culture that is more and more customer-centric. It is estimated that 30-40% of no-contact segment populations are ‘hidden’ goneaways and how to approach this issue remains a major concern within the industry.

Simon Armitage, the head of product development at Wescot, has emphasised the vital importance of customer contact. It is clear that investing in the cost associated with a trace or a contact is critical in many cases, but the industry remains challenged by how organisations within it may demonstrate a good return against such investments made. The value of such investments, Armitage says, is in the results’ visibility alongside the organisation’s consequent capability, which is to consider the results in question and apply the most appropriate treatment. Mis-use of third-party data is unlikely when this approach is taken. It is also the case that correct, ethical treatment is made easier, with appropriate ways of dealing with the situation being clearer in such instances. Older tracing formats are evolving alongside the emergence of new trace products to accommodate this responsible approach. The broader market can significantly benefit, alongside organisations in the sector, from a product that delivers live customer contact and not merely data validation in its basic form.

Wescot appreciates that an effective tracing solution also provides an opportunity for customer re-engagement

Under the regulatory framework ushered in by the Financial Conduct Authority (FCA), never before has it been so important for organisations to ensure that they have an effective and fair tracing system in place. It is no longer the case that a ‘one size fits all’ approach is appropriate when it comes to tracing activity; businesses need to ensure that appropriate treatments are applied to individual cases and that adequate provisions are in place to ensure that third parties are not contacted in error. In particular, there are likely to be significant repercussions for those organisations who repeatedly contact the same third parties in error, both from a compliance point of view and, more widely, in terms of damage to that organisation’s reputation. As Wescot is well aware, it is important to treat actual customers fairly. It is equally as important to try and avoid distress for third parties who may be approached by mistake.

One problem faced by businesses is over how to identify a genuine ‘goneaway’ situation. The new regulatory regime reflects this. The issue is also relevant when it comes to determining whether reasonable attempts have been made to make contact with a customer before any formal action is taken to recover the debt. It is no longer acceptable for an organisation to plough on regardless with formal action and ignore the fact that a customer has failed to respond to letters sent to him and that he has failed to answer telephone calls.

wescotAlso of relevance is the fact that the way organisations interact with customers has changed dramatically over the last few years. In many b2c relationships, the vast majority of contact is online. If it is a longstanding relationship which suddenly turns into a non-contact scenario, the challenge faced by a business is to consider whether the last known physical address and telephone details for that customer are correct. In this climate, many businesses are likely to benefit from effective early arrears reconnection services. Not only can this approach maximise the chances of recovery, it can also increase the chances of rehabilitating the relationship between the customer and the organisation. Businesses are likely to benefit from approaching a company with a proven track record in customer tracing. Wescot for instance, employs a highly experienced locate team coupled with an effective validation process – both of which combine to help re-establish contact between customer and client.

Wescot understands the changes in the collections niche that have occurred in recent years

Since 2008, a number of important factors have posed challenges for creditors and debt collection agencies. For one thing, there is of course the broad economic picture to consider. The last five years have seen the most significant and prolonged economic downturn since the 1930s. On the one hand, this means that many consumers have struggled with decreased levels of disposable income over recent years. At the same time, concerns about the financial services sector as a whole has led to tighter regulation and a greater emphasis on compliance.

Against this backdrop, it may be natural to assume that recovery rates would have decreased over the last five years. From the point of view of one of the leading UK debt collection agencies, Wescot, this has not in fact been the case. While there was an initial decline in the immediate aftermath of the unsecured portfolios collapse of 2008, recovery activity for this particular company actually improved markedly (when compared to a fixed 2006 benchmark).

wescotBy looking closely at the way this company operates, it is possible to see how it has managed to achieve considerable success against what may be regarded as a ‘difficult’ financial landscape. For one thing, the company aims to treat customers fairly and to engage with each customer in an effective manner. In this way, it is possible to open up a constructive dialogue and to come up with a realistic repayment plan. This is in marked contrast to the bad practices that previously earned the sector a bad name and which Wescot has always rejected. Such practices include poor tracing methods – including doing little or nothing to verify customer contact details to try and ensure they are as up to date as possible. Other examples of bad practice include aggressive letters, an excessive number of phone calls and uncontrolled doorstep visits.

So far as Wescot is concerned, such practices are unfair, ineffective and very often counterproductive in terms of reaching a satisfactory outcome for all parties concerned. For one thing, this type of behaviour runs contrary to the current compliance regime. Equally as important, this type of approach eliminates the possibility of a meaningful relationship being rebuilt between the organisation and its customer. It also significantly undermines the ability of the collections agent to engage in a meaningful way with the customer and to bring about a satisfactory resolution to the situation.

Wescot knows compliance and treating customers fairly go hand in hand

wescotThe phrase ‘Compliance’ covers many areas. It affects all parts of a business and how it operates, including not just the firm’s policies and strategy but also the way in which it communicates with each individual customer. Taking compliance seriously means having the governance arrangements in place to ensure a consistent approach throughout the entire business. Looking carefully at the regulations and guidelines that are relevant to the particular organisation’s activities is obviously important. Equally as important is ensuring that the practices conducted by the business are in accordance with the spirit of those regulations.

So far as debt collection agencies are concerned, the regulatory framework can be seen as a way of encouraging firms to treat customers fairly. It is fair to say that the financial services sector as a whole has been the subject of a considerable amount of negative press overage over recent years. The consumer credit niche has certainly not been immune to the cynical outlook shared not just by commentators and members of the public, but also policy makers. Calls for a revised regulatory framework have been strong in the aftermath of the 2008 downturn. It is important to remember however, that the development of best practice standards in the debt recovery industry has been an ongoing evolutionary process for some time.

Certain practices are no longer acceptable. These include inappropriately aggressive letters sent to individual customers. It also includes failure to validate contact data, leading to outside parties being contacted on numerous occasions. Certain companies within this niche have always rejected this type of approach and have adopted the type of practices that provide a very good example to other operators. One such company is the leading UK-based debt collections agency, Wescot. Rather than merely paying lip service to compliance and adherence to guidelines, this particular company has compliance at the heart of everything it does. It uses the latest technology to ensure compliance with all relevant data protection rules. Wescot also believes strongly in treating customers fairly. By engaging with individual customers on a meaningful level, it not only maximises the chances of recovery, but also of the business being able to rehabilitate and maintain its relationship with the individual customer. Rather than seeing compliance as a burden to be endured, it ought to be seen as a tool for increasing the prospects of success.

Wescot knows compliance ought to be seen as an investment rather than a burden

It is fair to say that in the minds of the general public, the image of the financial services sector has suffered over recent years. Instead of merely paying lip service to the issue of compliance, organisations ought to take their responsibilities seriously so that they can be seen to be delivering fair outcomes to customers. This is something all organisations engaged in the consumer credit niche ought to take into account when choosing debt collections solutions. For one thing, failure to take it seriously increases the risk of an organisation falling foul of the tightened regulations that have been introduced under the new compliance framework.

Equally, if an organisation is engaged in the type of unprofessional practices that were all too common in certain quarters of the debt collections world in the past, there are likely to be serious adverse consequences so far as that company’s public image is concerned. Such behaviour included sending out overly aggressive correspondence and telephone calls. It also included poor data validation processes, resulting in third parties being repeatedly contacted in error regarding matters that were not related to them.

wescotA model debt collection agency is one that has compliance at the heart of everything it does. For anyone looking for a debt collection solution from a reliable company, it is worth paying particularly close attention to Wescot. This leading UK debt collection agency is not only a leading member of the Credit Services Association, it has also been active in helping to shape and improve practice standards for the consumer credit industry as a whole.

Wescot knows better than most how the way in which the approaches used by reputable debt collections agencies have evolved over the years. Part of this is down to the fact that ‘compliance’ is not a new concept. Reputable market leaders such as Wescot have been providing a benchmark in terms of fair treatment of customers for some time. In turn, policymakers have introduced specific industry-wide regulations and guidelines that are designed to ensure that all operators within this niche should strive to meet these high standards. The company says that its customers are often surprised by just how customer-centric its approach is. In turn, this means that effective solutions can be worked out. Such solutions are realistic so far as the customer’s circumstances are concerned – as well as meeting the needs of organisations.

Wescot appreciates customer contact is vital for effective tracing

It is sometimes the case that organisations regard tracing activities not so much as an investment but as a simple data gathering exercise that ought to be carried out as quickly and as cheaply as possible. Solutions that some businesses rely on take the form of data cleansing to provide a light-touch indicator of where a customer may be living, in addition to designating all goneaway debt cases as ‘trace and collect’. Such approaches may meet the basic needs of many organisations. As Wescot appreciates however, such an approach, in isolation, can result in missed opportunities for organisations. In particular, they restrict the possibility of being able to re-engage meaningfully with a previously missing customer who has been traced.

wescotBy making actual and meaningful contact with a customer once he or she has been located, it provides far greater opportunity to deal with the arrears issue in an effective manner. Re-engagement makes it possible to treat customers fairly and work out a repayment plan that is acceptable to both the individual customer and to the organisation. It also opens up the possibility of rehabilitating the relationship between business and customer. From this perspective it can be seen that there is a place for basic data validation but at the same time, this should not be seen as a cheap and easy alternative to a product focused on delivering live customer contact.

There is also an important compliance-related element to this. Since the credit crisis of 2008, commentators, policymakers and the public have turned their gaze on conduct within the financial services sector as a whole – including the practices of those organisations engaged in debt collection. Under the revised regulatory framework, it will no longer be possible to ignore the fact that customers have failed to respond to all correspondence sent or that they have failed to answer telephone calls (especially where it transpires that those numbers are no longer current). Certain practices carried out previously in certain quarters of the consumer credit industry such as overly aggressive correspondence and inappropriate doorstep approaches will obviously fall foul of the regulations. What is more, such behaviour would almost certainly have an adverse impact on the reputation of the organisations involved in it. The leading UK debt collection agency, Wescot is a natural choice for anyone looking for a tracing solution from a company with a proven track record and a commitment to treating customers fairly.

Wescot knows over-reliance on ‘smart-data’-based tracing solutions may increase the incidence of mis-trace scenarios

wescotFor the credit services industry (and particularly those parts of the industry whose activities include tracing customers with whom organisations have lost contact), changes to the housing market over recent years have had significant implications. The high loan-to-value mortgages and interest-only deals that were common prior to the 2008 downturn have now either disappeared completely or have become an extreme rarity. This means greater numbers of people are living in short term rental arrangements or else are living with parents or other family members under informal arrangements for longer periods of time. For the consumer credit industry, this means it is often harder to differentiate genuine ‘goneaway’ scenarios from those situations where an individual is intentionally ignoring all attempts to make contact.

This has led to the development of what is referred to as ‘smart-data’-based tracing solutions. Whilst such solutions can provide a useful tool in those situations where an organisation is seeking to re-establish contact with an individual, they have their limitations (especially if used in isolation). What’s more, as Wescot points out, there is a marked correlation between the growth of these products and the incidence of mis-tracing. The company places a strong emphasis on treating customers fairly, which means it understands the need for organisations to pay due care and attention to the source and accuracy of the data they hold on customers and how they check and then go on to use that data. Avoiding mis-trace scenarios is an important part of this.

One potential cause of high mis-trace levels is the fact that the majority of organisations use the same type of credit reference agency (CRA) trace lead-generation data tools. It is very often the case that the same data sources are accessed on multiple occasions. If that information happens to be incorrect, it is easy for multiple mis-traces to occur. Wescot welcomes the fact that CRAs are taking steps to address this problem. One useful idea devised by the CRAs is a shared information line to deal with those instances where a mis-trace is identified. In such circumstances, all CRAs will be able to update their records to highlight incorrect data. This should reduce the chances of repeated mis-traces against an individual. For businesses looking for a locate solution with a proven track record, Wescot is worth serious consideration. The company combines tracing expertise with up-to-date validation processes to deliver results on behalf of clients and to treat customers fairly.

Improving Trace Procedures

wescotAn integral part of collecting debts is the trace procedure, which is why companies like Wescot are able to find the customers and begin the collection process. Given that the company will only receive payment from a client once the collection has been made, it is important that the trace procedure is as efficient as possible. Customer’s residency is a common issue with tracing as residency is far more fluid and transitional than in years gone by. With the rise in people renting as opposed to getting a mortgage, customers are able to move around a lot quicker, which makes for a large number of mis-trace results if data sources are not cleansed regularly.

Another significant change to the way that debts are collected is the switch from the Office of Fair Trading to the Financial Conduct Authority (FCA) as to which body regulates debt recovery and management. The FCA has enforced new rules regarding the image of the industry as a whole and how customers are treated once they have been found. ‘Goneaways’ is the term used for customers who cannot be contacted and it is estimated that 30-40% of those who have not replied are in fact a goneaway. The FCA has ruled that companies can no longer ignore a goneaway customer.

There is one important way in which companies such as Wescot can continue to thrive despite the fluid nature of customer residency, as well as not only abiding by the rules as set down by the FCA, but embracing them. Contacting customers is the only sure way to validate the data as presented by a credit reference agency (the common database provider that many debt recovery agencies use). A potential solution to this growing problem of goneaways is using a service that relies on live customer contact. This will ensure that the company is in line with the FCA’s requirements to improve customer service.

Tracing costs money as much as it costs the company time to complete a successful trace. By creating a new live customer contact product, debt recovery companies will see a greater improvement in a number of aspects.

Brief Market Outlook for the Credit Industry

To accurately assess the outlook for the credit industry, in particular the debt recovery market, it is essential to look at the sector from two perspectives. Both market compwescotetition and the global economy are primary factors in how debt recovery is going to proceed in the future. Not only does the UK’s economy as a whole play a big part in the performance of a debt agency, but so too does the performance of that company’s competitors.

The market as a whole is worth approximately £500 million, a figure that has not changed significantly since 2007, despite what was occurring throughout the financial world since that year. Competition is rife in the debt recovery industry, not only do large financial institutions and high street banks have their own departments that handle debt recovery, but the market is split between a few big name companies such as Wescot and many more companies that own a small percentage of the market share. One reason as to why there are so many debt recovery companies is that if collection rates are high and the business is efficient, there is more opportunity for a variety of aspects. Greater competition for example, has forced companies to present clients with greater price comparisons.

Looking more broadly, debt recovery companies have had to overcome a tumultuous economy, which has put pressure on their operations. Prior to 2007, there were a large number of personal loans being issued which naturally means a higher frequency of defaults; a stronger economy also provided customers with the means to eventually repay these debts. After the credit crunch however, consumers have been slow to borrow money and with more economic pressure on the individual, those who have defaulted are struggling to return their debt. This means that the industry as a whole has had to drastically change their strategies to remain abreast of the new difficulties.

For companies like Wescot, the outlook for the industry still remains positive. The fact that the market’s worth as a whole has not changed in seven years despite the banking crisis is testament to this. The debt recovery industry’s capability to adapt their methods quickly has ensured its security for the time being.