New Channels Essential to Improving Collections Effectiveness

Daniel Helfgott

The average consumer now has more ability to communicate than at any other point in history. Walk down any street and the options surround you: everyone is texting, emailing, tweeting, or busy talking on their cell phones. People are adopting the newest technologies at dazzling speeds. Unfortunately, the collection industry has lagged behind this trend despite the fact that unique RPCs (Right Party Contact Rates) remain below 5%. Businesses are slow to adopt these newer channels because of unsubstantiated operational and compliance issues, but not adopting these techniques will exacerbate the problem.

Lenders that ignore consumer preference are risking their ability to communicate, which will result in higher delinquencies and costs to collect. Landline telephones, once the most direct way to reach customers, are being surpassed in volume and usage by mobile phones. Early estimates show about 30% of households are wireless only, and projections are rising quickly. Sending letters is becoming costlier and less used. According to a statement released by the USPS in September 2011, the volume of mail in the last five years “has dropped 25 percent and single piece First-Class Mail — letters bearing postage stamps — has declined 36 percent in the same timeframe, and nearly 50 percent in the past ten years.” And yet the vast majority of our industry’s contact attempts are still through traditional channels.

There are operational complexities for Collections that, if overcome, provide clear benefits. A customer could open a wireless account in Miami, live there for six months, and then move to Seattle while keeping the same number. A customer could also port their Boston landline number to a cell phone and move to San Diego, unbeknownst to the lender. These are both innocuous actions by the customer, but lenders could unknowingly break FDCPA guidelines and call outside of prescripted calling windows. Collection shops that are mindful of cell phones will shift calling windows appropriately and minimize harassment liability.

Dedicated web sites are another superb example of a channel that provides opportunities if used correctly. There is a niche of customers that are embarrassed about the situation, especially if it is their first delinquency; self-service websites provide an anonymous environment in which to manage their account. Click to Chat, a natural extension of websites, also provides a sense of anonymity these customers desire. Lenders will be challenged to monitor conversations and determine the optimal number of simultaneous chats; however, chat sessions may be the only opportunity to communicate directly with these embarrassed customers before they charge off.

There are economic benefits to implementing these non-traditional channels as well. Once the infrastructure is in place, the cost effectiveness will be immense. As an example, emails cost pennies and the rate for SMS messages is around $0.15. Compare that with the cost of bulk mail and it is clear that lenders who are not shifting contact volume will pay higher costs to collect. In addition, lenders that adopt these channels are able to communicate however the customer prefers, thus creating a new way of thinking—“how do I communicate to be most effective and efficient”. Think of the improved cost savings and the possibility of increasing the likelihood of reaching the customer. Instead of a buckshot approach to collections (i.e., inefficient), lenders that target specific channels will reap the gains from fewer attempts.

Adoption by lenders is slow as there are no standard operating procedures nor is the infrastructure in place. Email is relatively new and there are unknowns such as sending messages to business emails or a household email address. There may also be internal barriers to adopting new channels as they are inherently riskier in the sense that unforeseen regulations may prohibit certain practices. Some lenders’ Legal departments will only allow the most limited use of these channels as a protection against future liabilty, which negates their effectiveness now and in the future. Yet even operating with these limitations, it is essential that lenders build the foundation to make these new channels common practice.

Dan Helfgott is a Managing Associate at Auriemma Consulting Group, a management consulting firm that specializes in the lending and payments industry. He is based at the firm’s New York office and focuses on projects related to Collections and Recovery. He can be reached by email.