Credit Crunch Means Lenders will Speed Collections Technology

The current problems in the credit market are likely to push lenders to accelerate their implementation times for credit collections technology initiatives, Needham, Mass.-based TowerGroup Senior Analyst Bobbie Britting told insideARM.com. Britting is the lead author of TowerGroup’s new report Future of Consumer Credit.

For its report, TowerGroup and Canadian-based technology firm CGI jointly developed a questionnaire for senior operations and technology personnel at 31 major financial services institutions in the U.S., Canada, United Kingdom, and Ireland. Participants received the online questionnaire in March. Fourteen firms — nine in the U.S. and five in the other countries — completed the survey, for a 45 percent response rate.

“The lenders we surveyed had collections initiatives on the horizon, but they were a little further out, now I think you’ll see more of those initiatives pushed into earlier in 2008,” Britting said. TowerGroup surveyed lenders in the spring about various aspects of the market and technology plans. But the credit problems that were just starting in March and April have accelerated since that time, so lenders are likely to be more aggressive in implementing credit collection technologies, or recovery accounting systems, according to Britting.

When asked when they planned to implement recovery accounting systems, 31 percent of the lenders said they would within five years; 23 percent said in 2008; 15 percent said this year; and 31 percent indicated they didn’t know.

Twenty-nine percent of respondents said they planned to install self-service collection systems in 2008, 14 percent said those systems are planned within five years and 43 percent said they didn’t know when they would be installed. The other 14 percent said they already had such systems.

While 23 percent of respondents said they use third-party collection firms, 15 percent said they expected to start using third-party collection companies this year. An additional 15 percent expect to start using third-party collection firms next year.

Other lenders will seek to improve their interfaces to third parties to support collections, according to the report. Twenty-nine percent plan to install those systems in 2008 while another 29 percent said they planned to install the systems within the next five years. Twenty-one percent said they planned installations this year, 14 percent said they already had the interfaces and the remaining 7 percent didn’t know when they might install the interfaces.

“Timing may be the answer for what is the best action or actions for any particular institution,” according to the report. “Lower-cost projects that can be implemented within shorter timeframes may be best suited for institutions needing to plan a well-defined, long-term strategy.”