All posts by Jeff Bernstein
One of the most successful best practices for improving agency performance is the use of scorecards for assessing and rank ordering performance of agencies in competition with each other. Much like people, agencies thrive when they understand how they are evaluated, how to influence those factors that contribute to success, and the recognition and reward for top tier performance. Rather than a simple view of performance based upon a recovery rate as a percentage of total inventory, best practice suggests that performance is more accurately reflected in vintage batch liquidation and peer group comparisons to the liquidation curve. Why? In a nutshell, differences in inventory aging and the liquidation curve. Let’s explain this in greater detail. Historically, collection agencies would provide their clients with better performance reporting than their clients had available to them. Clients would know how much business was placed in aggregate, but not by specific vintage relating to the month or year of placement. Thus, when a monthly remittance was received, the client would be incapable of understanding whether this month’s recoveries were from accounts placed last month, this year, or three years ago. This made forecasting of future cash flows from recoveries difficult, in that you would have no insight into where the funds were coming from. We know that as a charged off debt ages, its future liquidation rate generally downward sloping (the exception is auto finance debt, as there is a delay between the time of charge-off and rehabilitation of the debtor, thus future flows are higher beyond the 12-24 month timeframe). How would you know how to predict future cash flows and liquidation rates without understanding the different vintages in the overall charged off population available for recovery? This lack of visibility into liquidation performance created another issue. How do you compare the performance of two different agencies without understanding the age of the inventory and how it is liquidating? An as example, let’s assume that Agency A has been handling your recovery placements for a few years, and has an inventory of $10,000,000 that spans 3+ years, of which $1,500,000 has been placed this year. We know from experience that placements from 3 years ago experienced their highest liquidation rate earlier in their lifecycle, and the remaining inventory from those early vintages are uncollectible or almost full liquidated. Agency A remits $130,000 this month, for a recovery rate of 1.3%. Agency B is a new agency just signed on this year, and has an inventory of $2,000,000 assigned to them. Agency B remits $150,000 this month, for a recovery rate of 7.5%. So, you might assume that Agency B outperformed Agency A by a whopping 6.2%. Right? Er … no. Here’s why. If we had better visibility of Agency A’s inventory, and from where their remittance of $130,000 was derived, we would have known that only a couple of small insignificant payments came from the older vintages of the $10,000,000 inventory, and that of the $130,000 remitted, over $120,000 came from current year inventory (the $1,500,000 in current year placements). Thus, when analyzed in context with a vintage batch liquidation basis, Agency A collected $120,000 against inventory placed in the current year, for a liquidation rate of 8.0%. The remaining remittance of $10,000 was derived from prior years’ inventory. So, when we compare Agency A with current year placements inventory of $1,500,000 and a recovery rate against those placements of 8.0% ($120,000) versus Agency B, with current year placements inventory of $2,000,000 and a recovery rate of 7.5% ($150,000), it’s clear that Agency A outperformed Agency B. This is why the vintage batch liquidation model is the clear-cut best practice for analysis and MI. By using a vintage batch liquidation model and analyzing performance against monthly batches, you can begin to interpret and define the liquidation curve. A liquidation curve plots monthly liquidation rates against a specific vintage, usually by month, and typically looks like this: Exhibit 1: Liquidation Curve Analysis Note that in Exhibit 1, the monthly liquidation rate as a percentage of the total vintage batch inventory appears on the y-axis, and the month of funds received appears on the x-axis. Thus, for each of the three vintage batches, we can track the monthly liquidation rates for each batch from its initial placement throughout the recovery lifecycle. Future monthly cash flow for each discrete vintage can be forecasted based upon past performance, and then aggregated to create a future recovery projection. The most sophisticated and up to date collections technology platforms, including Experian’s Tallyman™ and Tallyman Agency Management™ solutions provide vintage batch or laddered reporting. These reports can then be used to create scorecards for comparing and weighing performance results of competing agencies for market share competition and performance management. Scorecards As we develop an understanding of liquidation rates using the vintage batch liquidation curve example, we see the obvious opportunity to reward performance based upon targeted liquidation performance in time series from initial placement batch. Agencies have different strategies for managing client placements and balancing clients’ liquidation goals with agency profitability. The more aggressive the collections process aimed at creating cash flow, the greater the costs. Agencies understand the concept of unit yield and profitability; they seek to maximize the collection result at the lowest possible cost to create profitability. Thus, agencies will “job slope” clients’ projects to ensure that as the collectability of the placement is lower (driven by balance size, customer credit score, date of last payment, phone number availability, type of receivable, etc.) For utility companies and other credit grantors with smaller balance receivables, this presents a greater problem, as smaller balances create smaller unit yield. Job sloping involves reducing the frequency of collection efforts, employing lower cost collectors to perform some of the collection efforts, and where applicable, engaging offshore resources at lower cost to perform collection efforts. You can often see the impact of various collection strategies by comparing agency performance in monthly intervals from batch placement. Again, using a vintage batch placement analysis, we track performance of monthly batch placements assigned to competing agencies. We compare the liquidation results on these specific batches in monthly intervals, up until the receivables are recalled. Typical patterns emerge from this analysis that inform you of the collection strategy differences. Let’s look at an example of differences across agencies and how these strategy differences can have an impact on liquidation: As we examine the results across both the first and second 30-day phases, we are likely to find that Agency Y performed the highest of the three agencies, with the highest collection costs and its impact on profitability. Their collection effort was the most uniform over the two 30-day segments, using the dialer at 3-day intervals in the first 30-day segment, and then using a balance segmentation scheme to differentiate treatment at 2-day or 4-day intervals throughout the second 30-day phase. Their liquidation results would be the strongest in that liquidation rates would be sustained into the second 30-day interval. Agency X would likely come in third place in the first 30-day phase, due to a 14-day delay strategy followed by two outbound dialer calls at 5-day intervals. They would have a better performance in the second 30-day phase due to the tighter 4-day intervals for dialing, likely moving into second place in that phase, albeit at higher collection costs for them. Agency Z would come out of the gates in the first 30-day phase in first place, due to an aggressive daily dialing strategy, and their takeoff and early liquidation rate would seem to suggest top tier performance. However, in the second 30-day phase, their liquidation rate would fall off significantly due to the use of a less expensive IVR strategy, negating the gains from the first phase, and potentially reducing their over position over the two 30-day segments versus their peers. The point is that with a vintage batch liquidation analysis, we can isolate performance of a specific placement across multiple phases / months of collection efforts, without having that performance insight obscured by new business blended into the analysis. Had we used the more traditional current month remittance over inventory value, Agency Z might be put into a more favorable light, as each month, they collect new paper aggressively and generate strong liquidation results competitively, but then virtually stop collecting against non-responders, thus “creaming” the paper in the first phase and leaving a lot on the table. That said, how do we ensure that an Agency Z is not rewarded with market share? Using the vintage batch liquidation analysis, we develop a scorecard that weights the placement across the entire placement batch lifecycle, and summarizes points in each 30-day phase. To read Jeff\'s related posts on the topic of agency management, check out: Vendor auditing best practices that will help your organization succeed Agency managment, vendor scorecards, auditing and quality monitoring
Auditing provides the organization with assurance that all financial controls are in place to ensure that trust account funds are maintained, access to financial records at the vendor location is tightly controlled, customer data is secure, and that the vendor is in full compliance with contractual requirements (i.e., minimum account servicing requirements for issues such as vendor actions following initial placement, ongoing contact efforts, remittance processing, settlement authorizations, etc.). There are two basic auditing processes that occur from a best practices perspective. The first one is fairly common, and involves use of an on-site audit. Onsite Auditing The onsite audit is required to examine financial records involving customer transactions, accounting processes, trust accounts and remittances, IT and security for handling sensitive customer information and records, and documentation of the processes that have occurred towards customer communication, contact efforts and results. There are differences of opinion as to both the frequency of onsite audits, and whether they should be announced or unannounced. Frequency is primarily an issue of the size of the overall vendor relationship and the degree of financial risk associated with a default, typically involving the trust account and legal exposure to litigation and brand reputation risk. Most utilities should follow an annual onsite audit schedule due to size of portfolio and attendant financial exposure. While surprise audits have the advantage of reducing any opportunity by the vendor to potentially alter records to cover up what would normally be audit violations, it does result in a more time-consuming audit schedule onsite, as the vendor is unable to prepare and have documentation available. The use of substantial online documentation lessens this issue, but nonetheless, there is more work to do onsite when nothing has been captured for review in advance. The other issue is that key managers from the vendor may not be available on the dates of a surprise audit. One way in which organizations chose to resolve the issue of surprise versus planned audit is to conduct one pre-planned and announced audit annually, and a smaller scaled unannounced onsite audit annually at least 2 quarters separated from the planned audit. The use of remote auditing and monitoring lessens the requirements for onsite audits in certain areas, other than IT / Security, financial and compliance. Remote Auditing / Monitoring Remote auditing and monitoring of vendors is a stronger tool for credit grantors to improve performance of agencies, in that it combines some of the same auditing checks to ensure compliance and quality of collections with an added value of focus on performance. The best tool in the arsenal is the use of digital logging to capture the collection call between the vendor and customers. When digital logging technology first came into use, it was cost prohibitive for collection agencies, and not fully accepted by the industry due to its possible use in litigation against the agencies. Over the past decade, as the costs of deployment have lessened, and agencies became more attuned to customer satisfaction and full FDCPA compliance, more agencies have installed digital logging into their call centers. Most agencies that utilize digital logging capture every customer contact effort that results in either a right party contact, or third party contact for messages, etc. Many of those agencies will tag each of these voice records as to whether they were a right party contact or not. The intent is to be able to audit more frequently those calls that were right party contacts, so that collector skills can be assessed in terms of how they managed the customer, their ability to create and sell payment solution, and ability to negotiate successfully with the customer. Typically, an organization that is using digital logging will have an internal quality assurance team that will create a compliance audit process that establishes a number of right party and non-right party contacts per collector. These calls are typically evaluated using a scorecard approach, and used for training purposes. They might alter the frequencies of monitoring based upon the tenure of the collector, their performance levels, and the results of prior monitoring, such that sample sizes are affected. Utilities and other credit grantors should have access to the entire inventory of raw digital log files for their projects and randomly audit them remotely. These should not be “assembled” or pre-selected by the vendor, so that there is no undue influence in deciding which calls / collectors to review. If the vendor is using a QA monitoring / compliance program and separately maintains a scorecard driven monitoring process, the credit grantor should have access where those calls and evaluations related to their own customers and contacts. The intent of the process is to listen for both quality of the communication with the customer from the perspective of effectiveness, but also to ensure compliance with FDCPA and that the customer was treated with respect and appropriately. Typically, a credit grantor would establish a remote monitoring schedule where x calls across the agent pool handing their assigned portfolio are monitored and evaluated with a simple checklist. Ideally, the credit grantor should be listening to a range of 100-150 right party contacts per month, based upon overall inventory and activity, but typically no more than 1-2% of the total right party contacts per month on their customer accounts. The credit grantor should provide monthly feedback to the agency regarding the monitoring of quality and compliance, noting any compliance or policy violations, and any concerns relating to customer contact quality and performance. Other aspects of the remote auditing that occurs each month should include ensuring that all servicing requirements are met. As an example, we would expect that the agency should perform various external checks for bankruptcy, deceased, etc. before initiating contact once the file has been received from the credit grantor as a placement. These database checks should be performed within the first 24 hours once placed, and then a letter of representation should be sent to those not flagged. The initial call to the customer should also occur within 24-48 hours from placement by the credit grantor, subject to phone number availability. Skip trace processes should commence immediately on those without phone numbers. There are requirements for how often accounts are attempted for contact, and settlement authorizations. All of these requirements are subject to the remote monitoring that is performed to ensure these are met. Coming soon... Best practices for improving agency performance.
Organizations approach agency management from three perspectives: (1) the need to audit vendors to ensure that they are meeting contractual, financial and legal compliance requirements; (2) ensure that the organization’s clients are being treated fairly and ethically in order to limit brand reputation risk and maintain a customer-centric commitment; (3) maximize revenue opportunities through collection of write-offs through successful performance management of the vendor. Larger organizations manage this process often by embedding an agency manager into the vendor’s site, notably on early out / pre charge-off outsourcing projects. As many utilities leverage the services of outsourcers for managing pre-final bill collections, this becomes an important tool in managing quality and driving performance. The objective is to build a brand presence in the outsourcer’s site, and focusing its employees and management team on your customers and daily performance metrics and outcomes. This is particularly useful in vendor locations in which there are a number of high profile client projects with larger resource pools competing for attention and performance, as an embedded manager can ensure that the brand gets the right level of attention and focus. For post write off recovery collections in utility companies, embedding an agency manager becomes cost-prohibitive and less of an opportunity from an ROI perspective, due to the smaller inventories of receivables at any agency. We urge that clients not spread out their placements to many vendors where each project is potentially small, as the vendors will more likely focus on larger client projects and dilute the performance on your receivables. Still, creating a smaller pool of agency partners often does not provide a resource pool of >50-100 collectors at a vendor location to warrant an embedded agency management approach. Even without an embedded agency manager, organizations can use some of the techniques that are often used by onsite managers to ensure that the focus is on their projects, and maintain an ongoing quality review and performance management process. The tools are fairly common in today’s environment --- remote monitoring and quality reviews of customer contacts (i.e., digital logging), monthly publishing of competitive liquidation results to a competitive agency process with market share incentives, weekly updates of month-to-date competitive results to each vendor to promote competition, periodic “special” promotions / contests tied to performance where below target MTD, and monthly performance “kickers” for exceeding monthly liquidation targets at certain pre-determined levels. Agencies have selective memory, and so it’s vital to keep your projects on their radar. Remember, they have many more clients, all of whom want the same thing – performance. Some are less vocal and focused on results than others. Those that are always providing competitive feedback, quality reviews and feedback, contests, and market share opportunities are top of mind, and generally get the better selection of collectors, team /project managers, and overall vendor attention. The key is to maintain constant visibility and a competitive atmosphere. Over the next several weeks, we'll dive into more detail for each of these areas: Auditing and monitoring, onsite and remote Best practices for improving agency performance Scorecards and strategies Market share competition and scorecards
In my last blog, I discussed the basic concept of a maturation curve, as illustrated below: Exhibit 1 In Exhibit 1, we examine different vintages beginning with those loans originated by year during Q2 2002 through Q2 2008. The purpose of the vintage analysis is to identify those vintages that have a steeper slope towards delinquency, which is also known as delinquency maturation curve. The X-axis represents a timeline in months, from month of origination. Furthermore, the Y-axis represents the 90+ delinquency rate expressed as a percentage of balances in the portfolio. Those vintage analyses that have a steeper slope have reached a normalized level of delinquency sooner, and could in fact, have a trend line suggesting that they overshoot the expected delinquency rate for the portfolio based upon credit quality standards. So how can you use a maturation curve as a useful portfolio management tool? As a consultant, I spend a lot of time with clients trying to understand issues, such as why their charge-offs are higher than plan (budget). I also investigate whether the reason for the excess credit costs are related to collections effectiveness, collections strategy, collections efficiency, credit quality or a poorly conceived budget. I recall one such engagement, where different functional teams within the client’s organization were pointing fingers at each other because their budget evaporated. One look at their maturation curves and I had the answers I needed. I noticed that two vintages per year had maturation curves that were pointed due north, with a much steeper curve than all other months of the year. Why would only two months or vintages of originations each year be so different than all other vintage analyses in terms of performance? I went back to my career experiences in banking, where I worked for a large regional bank that ran marketing solicitations several times yearly. Each of these programs was targeted to prospects that, in most instances, were out-of-market, or in other words, outside of the bank’s branch footprint. Bingo! I got it! The client was soliciting new customers out of his market, and was likely getting adverse selection. While he targeted the “right” customers – those with credit scores and credit attributes within an acceptable range, the best of that targeted group was not interested in accepting their offer, because they did not do business with my client, and would prefer to do business with an in-market player. Meanwhile, the lower grade prospects were accepting the offers, because it was a better deal than they could get in-market. The result was adverse selection...and what I was staring at was the \"smoking gun\" I’d been looking for with these two-a-year vintages (vintage analysis) that reached the moon in terms of delinquency. That’s the value of building a maturation curve analysis – to identify specific vintages that have characteristics that are more adverse than others. I also use the information to target those adverse populations and track the performance of specific treatment strategies aimed at containing losses on those segments. You might use this to identify which originations vintages of your home equity portfolio are most likely to migrate to higher levels of delinquency; then use credit bureau attributes to identify specific borrowers for an early lifecycle treatment strategy. As that beer commercial says – “brilliant!”
--by Jeff Bernstein In the current economic environment, many lenders and issuers across the globe are struggling to manage the volume of caseloads coming into collections. The challenge is that as these new collection cases come into collections in early phases of delinquency, the borrower is already in distress, and the opportunity to have a good outcome is diminished. One of the real “hot” items on the list of emerging best practices and innovating changes in collections is the concept of early lifecycle treatment strategy. Essentially, what we are referring to is the treatment of current and non-delinquent borrowers who are exhibiting higher risk characteristics. There are also those who are at-risk of future default at higher levels than average. The challenge is how to identify these customers for early intervention and triage in the collections strategy process. One often-overlooked tool is the use of maturation curves to identify vintages within a portfolio that is performing worse than average. A maturation curve identifies how long from origination until a vintage or segment of the portfolio reaches a normalized rate of delinquency. Let’s assume that you are launching a new credit product into the marketplace. You begin to book new loans under the program in the current month. Beyond that month, you monitor all new loans that were originated/booked during that initial time frame which we can identify as a “vintage” of the portfolio. Each month’s originations are a separate vintage or vintage analysis, and we can track the performance of each vintage over time. How many months will it take before the “portfolio” of loans booked in that initial month reach a normal level of delinquency based on these criteria: the credit quality of the portfolio and its borrowers, typical collections servicing, delinquency reporting standards, and factor of time? The answer would certainly depend upon the aforementioned factors, and could be graphed as follows: Exhibit 1 In Exhibit 1, we examine different vintages beginning with those loans originated during Q2 2002, and by year Q2 2008. The purpose of the analysis is to identify those vintages that have a steeper slope towards delinquency, which is also known as a delinquency maturation curve. The X-axis represents a timeline in months, from month of origination. Furthermore,, the Y-axis represents the 90+ delinquency rate expressed as a percentage of balances in the portfolio. Those vintages that have a steeper slope have reached a normalized level of delinquency sooner, and could in fact, have a trend line suggesting that they overshoot the expected delinquency rate for the portfolio based upon credit quality standards. So how do we use the maturation curve as a tool? In my next blog, I will discuss how to use maturation curves to identify trends across various portfolios. I will also examine differentiate collections issues from originations or lifecycle risk management opportunities.
-- by Dan Buell Towards the end of 2007, the management of Bay Area Credit Service embarked on an agressive strategy to dramatically enhance the company\'s market position and increase its collection revenues. These goals could be achieved only through superior performance at competitive rates. At the same time, though, the company needed to drastically reduce internal operating expenses while facing significant competition. The company\'s major goals for 208 included: * Earn a much larger share of business from one of the nation\'s top five cellular phone service providers; * Become a major collections partner for one of the nation\'s largest banking institutions; * Earn more than 50 percent of the market in the pre-charge-off, early-out segment for the nation\'s largest landline communications provider; * Enhance the company\'s position in the secondary collections tier. It\'s an interesting case study. Navigate to the link to learn more: https://www.experian.com/whitepapers/index.html
--by Mike Sutton In today’s collections environment, the challenges of meeting an organization’s financial objectives are more difficult than ever. Case volumes are higher, accounts are more difficult to collect and changing customer behaviors are rendering existing business models less effective. When responding to recent events, it is not uncommon for organizations to take what may seem to be the easiest path to success — simply hiring more staff. Perhaps in the short-term there may appear to be cash flow improvements, but in most cases, this is not the most effective way to cope with long-term business needs. As incremental staff is added to compensate for additional workloads, there is a point of diminishing return on investment and that can be difficult to define until after the expenditures have been made. Additionally, there are almost always significant operational improvements that can be realized by introducing new technology. Furthermore, the relevant return on investment models often forecast very accurately. So, where should a collections department consider investing to improve financial results? The best option may not be the obvious choice, and the mere thought can make the most seasoned collections professionals shutter at the thought of replacing the core collections system with modern technology. That said, let’s consider what has changed in recent years and explore why the replacement proposition is not nearly as difficult or costly as in the past. Collection Management Software The collections system software industry is on the brink of a technology evolution to modern and next-generation offerings. Legacy systems are typically inflexible and do not allow for an effective change management program. This handicap leaves collections departments unable to keep up with rapidly changing business objectives that are a critical requirement in surviving these tough economic times. Today’s collections managers need to reduce operational costs while improving these objectives: reducing losses, improving cash flow and promoting customer satisfaction (particularly with those who pose a greater lifetime profit opportunity). The next generation collections software squarely addresses these business problems and provides significant improvement over legacy systems. Not only is this modern technology now available, but the return on investment models are extremely compelling and have been proven in markets where successful implementations have already occurred. As an example of modern collections technologies that can help streamline operations, check out the overview and brief demonstration that is on this link: www.experian.com/decision-analytics/tallyman-demo.html.
--by Mike Sutton I recently interviewed a number of Experian clients to determine how they believe their organizations and industry peers will prioritize collections process improvement over the next 24 months. Additional contributions were collected by written surveys. Here are several interesting observations: Improve Collections survey results: Financial services professionals, in general, ranked “loss mitigation / risk management improvement” as the most critical area of focus. Credit unions were the financial services group’s exception and placed” customer relationship management / attrition control” at the top of their priority list. Healthcare providers ranked both “general delinquency management” and “improving cash flow / receivables” as their primary area of focus for the foreseeable future. Almost all of the first-party contributors, across all industries polled, ranked “operational expense management / cost reductions” as being very important or at least a high priority. This category was also rated the most critical by utilities. “External partner management (agencies, repo vendors and debt buyers)” also ranked high, but did not stand out on its own, as a top priority for any particular group. All of the categories mentioned above were considered important by every respondent, but the most urgent priorities were not consistent across industries.
Put yourself in the shoes of your collections team. The year ahead is challenging. Workloads are increasing as consumer debt escalates, and collectors are working tiring, stressful shifts talking to people who don\'t want to talk about their debts.What kind of incentives can improve your collections performance and at the same time as create a well motivated and productive team?IntroductionFinancial incentives have long been a popular method to help boost staff performance. These rewards usually relate to the achievement of certain goals -- either personal, team, organizational or a combination of all three. A well-constructed incentive plan will increase staff morale and loyalty, as well as making a valuable difference to the bottom line. It can help ensure you are managing a team who are running at full speed and capability during these busy, turbulent times.However, collections managers can also implement alternative non-monetary incentive programs that can boost staff commitment and effectiveness.This series of postings identifies cash and non-cash alternatives that can help build and maintain a motivated team.Getting StartedBefore introducing a new incentive plan, clearly explain your objectives to the team. If your main goal is to maximize profitability, boost morale by letting your team know they are a major source of profit. Their understanding of how individual performance relates to the business will deepen their commitment to the program once it begins.To help you decide what to include in the incentive plan, you must first understand what drives your team. This should be ascertained by conducting regular performance appraisals, call monitoring, attitude surveys and informal conversations. Your staff will likely tell you that increased status and recognition, higher pay, better working conditions and improved benefits would increase both morale and performance. We can look into incentives that address these requirements individually, but let\'s begin with the most obvious: money.Money is a powerful motivatorThe current economic climate guarantees that money is more important to your team members than ever; they want to be financially rewarded for their efforts. In this industry, collectors work individually so it is wise to target them in this way when using financial incentives.Comparing individuals can also achieve higher performance levels because the cachet of being \'top dog\' is a real motivator for some people.Our advice is to begin by targeting staff in three familiar areas and ensure from the start that your collections system delivers the depth and granularity of management information to support your incentive program.I would like to thank the Experian collections experts who contributed to this four-part series. The rest of the series will be posted soon!
-- by Jeff BernsteinSo, here I am with my first contribution to Experian Decision Analytics’ collections blog, and what I am discussing has practically nothing to do with analytics. But, it has everything to do with managing the opportunities to positively impact collections results and leveraging your investment in analytics and strategies, beginning with the most important weapon in your arsenal – collectors.Yes, I know it’s a bit unconventional for a solutions and analytics company to talk about something other than models; but the difference between mediocre results and optimization rests with your collectors and your organization’s ability to manage customer interactions.Let’s take a trip down memory lane and reminisce about one of the true landscape changing paradigm shifts in collections in recent memory – the use of skill models to become payment of choice.AT&T Universal Card was one of the first early adopters of a radical new approach towards managing an emerging Gen X debtor population during the early 1990s. Armed with fresh research into what influenced delinquent debtors into paying certain collectors while dogging others, they adopted what we called a “management systems” approach towards collections.They taught their entire collections team a new set of skills models that stressed bridging skills between the collector and the customer, thus allowing the collector to interact in a more collaborative, non-aggressive manner. The new approach enabled collectors to more favorably influence customer behavior, creating payment solutions collaboratively that allowed AT&T to become “payment of choice” when competing with other creditors competing for share of wallet.A new of set of skill metrics, which we now affectionately call our “dashboard,” were created to measure the effective use of the newly taught skill models, and collectors were empowered to own their own performance – and to leverage their team leader for coaching and skills development. Team developers, the new name for front line collection managers, were tasked with spending 40-50% or more of their time on developmental activities, using leadership skills in their coaching and development activities. The game plan was simple.• Engage collectors with customer focused skills that influenced behavior and get paid sooner.• Empower collectors to take on the responsibility for their own development.• Make performance results visible top-to-bottom in the organization to stimulate competitiveness, leveraging our innate desire for recognition. • Make leaders accountable for continuous performance improvement of individuals and teams.It worked. AT&T Universal won the Malcom Baldrige National Quality Award in 1992 for its efforts in “delighting the customer” while driving their delinquencies and charge-offs to superior levels. A new paradigm shift was unleashed and spread like wildfire across the industry, including many of the major credit card issuers and top tier U.S. banks, and large retailers.Why do I bring this little slice of history up in my first blog?I see many banking and financial services companies across the globe struggle with more complex customer situations and harder collections cases -- with their attention naturally focused on tools, models, and technologies. As an industry, we are focused on early lifecycle treatment strategy, identifying current, non-delinquent customers who may be at-risk for future default, and triaging them before they become delinquent. Risk-based collections and segmentation is now a hot topic. Outsourcing and leveraging multiple, non-agent based contact channels to reduce the pressures on collection resources is more important than ever. Optimization is getting top billing as the next “thing.”What I don’t hear enough of is how organizations are engaged in improving the skills of collectors, and executing the right management systems approach to the process to extract the best performance possible from our existing resources. In some ways, this may be lost in the chaos of our current economic climate. With all the focus on analytics, segmentation, strategy and technology, the opportunity to improve operational performance through skill building and leadership may have taken a back seat.I’ve seen plenty of examples of organizations who have spent millions on analytical tools and technologies, improving portfolio risk strategy and targeting of the right customers for treatment. I’ve seen the most advanced dialer, IVR, and other contact channel strategies used successfully to obtain the highest right party contact rates and the lowest possible cost. Yet, with all of that focus and investment, I’ve seen these right party contacts mismanaged by collectors who were not provided with the optimal coaching and skills.With the enriched data available for decisioning, coupled with the amazing capabilities we have for real time segmentation, strategy scripting, context-sensitive screens, and rules-based workflow management in our next generation collections systems, we are at a crossroads in the evolution of collections.Let’s not forget some of the “nuts and bolts” that drive operational performance and ensure success.Something old can be something new. Examine your internal processes aimed at producing the best possible skills at all collector levels and ensure that you are not missing the easiest opportunity to improve your results.
Back during World War I, the concept of “triage” was first introduced to the battlefield. Faced with massive casualties and limited medical resources, a system was developed to identify and select those who most needed treatment and who would best respond to treatment. Some casualties were tagged as terminal and received no aid; others with minimal injuries were also passed over. Instead, medical staff focused their attentions on those who required their services in order to be saved. These were the ones who needed and would respond to appropriate treatment. Our clients realize that the collections battlefield of today requires a similar approach. They have limited resources to face this mounting wave of delinquencies and charge offs. They also realize that they can’t throw bodies at this problem. They need to work smarter and use data and decisioning more effectively to help them survive this collections efficiency battle. Some accounts will never “cure” no matter what you do. Others will self-cure with minimal or no active effort. Taking the right actions on the right accounts, with the right resources, at the right time is best accomplished with advanced segmentation that employs behavioral scoring, bureau-based scores and other relevant account data. The actual data and scores that should be used depend on the situation and account status, and there is no one-size-fits-all approach.
How is your financial institution/organization working to improve your collections work stream?What are some of your keys for collections efficiency?What tools do you use to manage your collections workflow?
In addition to behavioral models, collections and account management groups need the ability to implement collections workflow strategies in order to effectively handle and process accounts, particularly when the optimization of resources is a priority. While the behavioral models will effectively evaluate and measure the likelihood that an account will become delinquent or result in a loss, strategies are the specific actions taken, based on the score prediction, as well as other key information that is available when those actions are appropriate. Identifying high-risk accounts, for example, may result in strategies designed to accelerate collections management activity and execute more aggressive actions. On the other hand, identifying low-risk accounts can help determine when to take advantage of cost-saving actions and focus on customer retention programs. Effective strategies also address how to handle accounts that fall between the high- and low-risk extremes, as well as accounts that fall into special categories such as first payment defaults, recently delinquent accounts and unique customer or product segments. To accommodate lenders with systems that cannot support either behavioral scorecards or strategies, Experian developed the powerful service bureau solution, Portfolio Management Package, which is also referred to as PMP. To use this service, lenders send Experian customer master file data on a daily basis. Experian processes the data through the Portfolio Management Package system which includes calculating Fast Start behavior scores and identifying special handling accounts and electronically delivers the recommended strategies and actions codes within hours. Scoring and strategy parameters can be easily changed, as well as portfolio segmentation, special handling options and scorecard selections. PMP also supports Champion Challenger testing to enable users to learn which strategies are most effective. Comprehensive reports suites provide the critical information needed for lenders to design strategies and evaluate and compare the performance of those strategies.
Optimization is a very broad and commonly used term today and the exact interpretation is typically driven by one's industry experience and exposure to modern analytical tools. Webster defines optimize as: "to make as perfect, effective or functional as possible". In the risk/collections world, when we want to optimize our strategies as perfect as technology will allow us, we need to turn to advanced mathematical engineering. More than just scoring and behavioral trending, the most powerful optimization tools leverage all available data and consider business constraints in addition to behavioral propensities for collections efficiency and collections management. A good example of how this can be leveraged in collections is with letter strategies. The cost of mailing letters is often a significant portion of the collections operational budget. After the initial letter required by the Fair Debt Collection Practice Act (FDCPA) has been sent, the question immediately becomes: “What is the best use of lettering dollars to maximize return?” With optimization technology we can leverage historical response data while also considering factors such as the cost of each letter, performance of each letter variation and departmental budget constraints, while weighing the alternatives to determine the best possible action to take for each individual customer. n short, cutting edge mathematical optimization technology answers the question: "Where is the point of diminishing return between collections treatment effectiveness and efficiency / cost?"
Currently, financial institutions focus on the existing customer base and prioritize collections to recover more cash, and do it faster. There is also a need to invest in strategic projects with limited budgets in order to generate benefits in a very short term, to rationalize existing strategies and processes while ensuring that optimal decisions are made at each client contact point. To meet the present challenging conditions, financial institutions increasingly are performing business reviews with the goal of evaluating needs and opportunities to maximize the value created in their portfolios. Business reviews assess an organization’s capacity to leverage on existing opportunities as well as identifying any additional capability that might be necessary to realize the increased benefits. An effective business review covers the following four phases: Problem definition: Establish and qualify what the key objectives of the organization are, the most relevant issues to address, the constraints of the solution, the criteria for success and to summarize how value management fits into the company’s corporate and business unit strategies. Benchmark against leading practice: Strategies, processes, tools, knowledge, and people have to be measured using a review toolset tailored to the organization’s strategic objectives. Define the opportunities and create the roadmap: The elements required to implement the opportunities and migrating to the best practice should be scheduled in a phased strategic roadmap that includes the implementation plan of the proposed actions. Achieve the benefits: An ROI-focused approach, founded on experience in peer organizations, will allow analysis of the cost-benefits of the recommended investments and quantify the potential savings and additional revenue generated. A continuous fine-tuning (i.e. impact of market changes, looking for the next competitive edge and proactively challenge solution boundaries) will ensure the benefits are fully achieved. Today’s blog is an extract of an article written by Burak Kilicoglu, an Experian Global Consultant To read the entire article in the April edition of Experian Decision Analytics’ global newsletter e-news, please follow the link below: http://www.experian-da.com/news/enews_0903/Story2.html
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