Study: Expensive and Outdated Collections Methods Hampering Industry Rebound

SEATTLE — A recent survey of collections and financial services executives nationwide shows that even as the economy improves, companies are challenged by changing consumer behavior and increasing costs as they try to collect on past-due accounts.  In addition to these two findings, the 2010 Collections Trends and Challenges Study also revealed that nearly 50 percent of respondents make no distinction between chronically late payers and consumers who have fallen behind for the first time.  The study was commissioned by Varolii Corporation, a leader in automated collections communications.

Despite an Improving Economy, the Collections Environment Remains Difficult

More than 400 collections and financial services executives surveyed nationwide responded to a variety of questions about the challenges they face and what actions they are taking to improve performance.  While the economy continues to hamper collections efforts, other forces are also in play:

• Consumers aren’t opening their wallets as much as they used to.  Consumers’ inability to pay is a top challenge to collections operations, according to 81 percent of respondents.
• Even when consumers can afford to pay, they often don’t.  Thirty-nine percent of those surveyed cite consumers’ unwillingness to pay as one of their top challenges.
• Increased costs are contributing to poor collections performance.  Twenty-five percent consider increasing collections costs to be a major barrier.

Outdated Communication Methods Compound the Collections Challenge

When asked what strategies they were using to deal with larger volumes of delinquent accounts, virtually all respondents report using multiple methods to reach past-due borrowers.  

• Direct mail still rules.  More than 70 percent of companies still use mail to contact delinquent account holders.  While some types of lending require mail letters for past-due notices, other lenders simply haven’t considered whether to stop using it.
• Ramping up collections staff continues to be a favored—and expensive—tactic.  One-third of companies surveyed said they are hiring more collections agents.  Staffing is the largest component of contact center costs, with agent salaries comprising nearly 54 percent of overall operating expenses.
• No distinction made between landline and mobile numbers.  On average, thirty-eight percent of phone numbers on respondents’ target lists are mobile numbers.  Seventy-three percent of companies have their agents make manual calls just as if they were calling a land line.  Only eight percent are using text messaging, while just twelve percent are leaving automated voice messages on mobile phones.
• Some companies focusing their efforts on a subset of accounts.  Sixty percent of survey respondents are using account prioritization to determine which accounts to treat because they don’t have the resources to effectively contact all past-due accounts.  However, by primarily focusing on high-value or high-risk accounts and ignoring others, they are potentially leaving money on the table.

Retaining First-Time Delinquent Borrowers is a Stated Priority, But Companies Do Little to Retain Them

The economic slump has created a new kind of delinquent borrower:  first-time defaulters.  These are borrowers who have never fallen behind before and will likely never fall behind again once they are back on their feet.  Eventually, these borrowers will be profitable again for the companies who lend to them.  However, few companies make any distinction between chronically late payers and first-time defaulters when attempting to collect a debt:

• Twenty-five percent of survey respondents do not segment their lists at all to send more personalized communications, and 30 percent only segment according to large pre-determined groups.
• While fifty-seven percent of respondents state their organizations place a great deal of importance on retaining first-time defaulters, nearly 50 percent report no difference in how they treat them.  Instead, first-time defaulters progress through the same early-, mid- and late-stage collection buckets as those borrowers who habitually pay late.
• Only sixteen percent of respondents have created an entirely different collections experience for first-time defaulters.
• Thirty-six percent can’t even identify who among their delinquent borrowers have fallen behind for the first time.

Automated communications starting to emerge as a lower-cost and more effective alternative

As part of their effort to combat the sheer number of delinquent accounts and contain costs, many organizations are shifting collection methods toward those that can more easily scale to match the increasing volume.  Forty-two percent of respondents said they are increasing their use of automated communications to reach past-due accounts and offer the option to make payments directly or speak to a collections agent.  By contacting past-due borrowers with intelligent and personalized messages via voice, text and email, companies can collect more on past-due accounts at a lower cost, while freeing up their collections agent to work on more challenging accounts.

“Collections organizations have been whipsawed over the last few years by skyrocketing consumer debt delinquency and plummeting resources.  It’s incredibly difficult to collect on past-due balances,” said Brian Moore, executive director of Collections Solutions at Varolii. “While it’s good that companies are increasing their collection budgets, they still struggle with outmoded techniques.  Varolii clients have learned they can be more effective by judicially applying appropriate technology rather than throw more people at the problem.”

Varolii is the recognized leader in helping companies collect what is owed them through the use of smart, automated communications.  In any given month, companies across a wide variety of industries use Varolii to contact more than 20 million consumers, whose past-due account balances total nearly 54 billion dollars.

Study Methodology
The 2010 Collections Trends and Challenges Study was conducted online within the United States by Lodestar Research on behalf of Varolii from May 4 to May 19, 2010.  The results are based on responses from more than 400 qualified collections executives, representing credit unions, mortgage servicers, utilities, auto lenders, credit card companies and commercial and retail banks.  The margin of error for percentages, based on the number of responses across the population receiving the survey, is ± 4.7 at the 95% confidence level.  For complete survey methodology, please contact Varolii Corporation.

About Varolii Corporation
Varolii is the market and technology leader in smart, automated communications. Its on-demand communication solutions help organizations easily and effectively reach and interact with large numbers of customers and employees, reducing operational costs and improving service. Varolii provides the industry’s only cross-channel communications technology, which blends voice, SMS and email into a single conversation and provides recipients with multiple options to take action. At the heart of the on-demand platform is Varolii ID™, which automatically analyzes each recipient’s past responses to personalize future communications. With Varolii, organizations can execute true 1-to-1 communication on a large scale, achieving better results from fewer notifications. More than 380 companies trust Varolii to send over four million communications every business day. For more information, visit www.varolii.com.