The financial crisis has catapulted the debt collection
sector into focus, with rising delinquencies forcing many consumers
to default. Simon Waller, head of collections and recoveries at
Experian, tells Farah Halime how the firm will meet the challenges
of a changing economic climate despite coming under increasing
financial pressure.
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Unemployment has risen, household incomes have dropped and
consumers’ ability to service debt has also declined sharply amid
ongoing credit troubles in the financial sector.
From the outside, this could be
perceived as good news for debt collection agencies (DCAs) with a
rise in insolvencies boosting the industry.
But Simon Waller, Experian’s head
of collections and recoveries, said this is not the case for an
industry that has come under increasing financial pressure and is
relied on by more than 90% of the UK’s leading banks and building
societies.
“The financial well-being of our
clients is great for us. Having our clients suffering from more
people being in debt is probably the opposite of ‘great’.
Particularly as it means other areas of our business would see a
relative decline,” he told RBI.
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By GlobalDataAmong the estimated 600 DCAs in the
UK that have a combined turnover of almost £700m per annum, 10%
have been forced to cease trading during 2009, up from 6% in
2008.
The firm’s analysis of DCA
financial strength has also revealed that the proportion of DCAs
with a D-rated commercial credit score – the second riskiest band –
doubled between 2008 and 2009. Experian expects between 1.4% and
1.8% of firms with this rating to become insolvent in 2010.
Waller has over 20 years’ senior
management experience and developed debt management products and
consulting services for Fair Isaac and First Data International
before joining Experian in 2009.
He said one of the main challenges
the firm’s clients have experienced is the sharp inflow in
delinquent accounts.
“[Banks] have a problem. How do we
treat customers well when there are so many more customers that
need treating and looking after?” he said.
Balancing the needs of
customers
A “tight balance” is emerging between the need to look after the
so-called “good” customers that keep up repayments and the “bad”
that prioritise other payments.
The credit crunch has led to
another phenomenon that has presented another dilemma for Experian
and its clients: sectors of the population not normally associated
with debt collection have crept into focus, such as those in higher
income bands.
With the downfall of the financial
sector, unemployment in financial districts has been
well-documented. The biggest increase in personal insolvency was
experienced among the so-called ‘global power brokers’; mostly
young, highly-educated people, who have gathered in the most
exclusive areas of London and work predominantly in the financial
sector.
According to Experian, the number
of insolvencies in this category jumped by 43% in 2009 compared to
2008.
“These are generally wealthy
groups, that banks see as good bets and profitable, that are having
severe financial difficulties where they weren’t before,” he
said.
“Clearly, dealing with an
18-year-old absconder needs a completely different process than
dealing with someone that has been a loyal customer for many
years.”
As a result, organisations have had
to rapidly re-think the strategies they will deploy after being
developed to treat a certain sub-set of the population.
Waller said there had been a “huge
demand” in the last 18 months for new types of data-based solutions
that enable organisations to differentiate between segments.
He said the change in market
conditions has forced Experian’s clients to stop looking at
acquiring customers but instead to focus on customer management, or
how organisations should help customers once they have signed
them.
Waller predicts the debt collection
market will evolve further over the next few years, with a
separation into the “real enforcers” (“two men knocking on peoples
doors saying you owe ‘x’ number of pounds and if you don’t pay
we’ll take the TV”) and the more sophisticated specialists at the
other end.
But he added that of the total
DCAs, about 20 of them make up 80% of the market volume, with the
remaining organisations, or real enforcers, at the lower end of the
spectrum.
Waller said Experian’s future plans
hinge on the turnaround of the economy when its clients can return
to investment, pushing through a number of opportunities that are
on hold.
He made reference to an updated
tool the firm was working on that would allow banks to predict how
its consumers will behave with repayments.
“When banks start lending in bulk,
one of the things they would like to look at is how economic
conditions in the future will affect their lending policies today –
which is completely new,” he said.
By combining risk-based scoring
with economic modelling, forward-looking predictions can be given
on how consumers will behave. As opposed to lending to segments of
the population based on the past experiences of similar sorts of
people as has occurred historically.
“That’s an area of the business that we see picking up very
rapidly once the economic conditions start getting easier,” he
said.
