Collections and Recoveries
How to Improve Commercial Performance,
Lessons from the US and UK market place
Collections Euro...
The Evolution of an Attendee
T
Start
Mid Conference Drinks
Now
Bridgeforce Limited
• Founded in the United States in 2000, Bridgeforce has established itself as
internationally respecte...
Today’s Session
With reference to a series of case studies we will discuss:
•The commercial returns of creative forbearanc...
Case Study #1
Problem:
Aggressive litigant with limited forbearance solutions, poor Collections
contact process and proper...
Case Study #1
Approach and Solution:
Feedback solicited from collectors and customers determined that a
change of mind set...
Case Study #1
Results:
2,500 of 7,500 applicants took the product up with the following outcomes:
Client Top 10 UK mortgag...
Case Study #1
Benefits:
•Impairment saving per successful case >£30,000
•Customer indebtedness down by 33% and bureau scor...
Case Study #1
Client Top 10 UK mortgage lender
Assets >£50 billion
Collections Customers >50,000
Loan Impairment >£1 billi...
Case Study #2
Problem:
One size fits all approach to Collections ‘marketing’ activity, tone and
content of communications ...
Case Study #2
Approach and Solution:
Redefined the desired outcome of marketing activity to:
•Offer a specific solution, n...
Case Study #2
Results:
Dramatically increased response rates: Up 400%
Inbound calls from customers regarding the specific ...
Case Study #3
Problem:
Collections function where staff had 16 key performance indicators (KPI) to
achieve and an operatio...
Case Study #3
Approach and Solution:
Went back to basics to define a Collector’s core competency as:
•Making commercial, s...
Case Study #3
Results:
•Concessionary arrangements down 65%
•Average arrangement value up 20%
•Kept rate up 10%
•Healthy c...
Case Study #3
Case Study #4 – Mortgage Shortfall
Problem:
Rapidly growing mortgage shortfall book with single treatment and contact
stra...
Case Study #4
Client Top 10 UK mortgage Lender
Recoveries Assets >£2 billion
Recoveries Customers >40,000
Average Balance ...
Case Study #4
Client Top 10 UK mortgage Lender
Recoveries Assets >£2 billion
Recoveries Customers >40,000
Average Balance ...
What’s on the Horizon?
Challenges:
•Compliance and conduct risk – US regulators are showing their teeth
•Collections cost ...
Questions?
SmithNovak Conference, Prague
June 14, 2013
22
© Copyright 2012, Confidential & Proprietary Property of Bridgeforce Inc.
Bridgeforce welcomes the opportunity to
partn...
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Andrew Domino, Adam Thornber: Collections and recoveries - how to improve commercial performance - lessons from the us and uk market place

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• The commercial returns of creative forbearance
• How to use customer incentives effectively
• Which metrics to target and why
• Effective Mortgage Shortfall recovery

Published in: Economy & Finance, Business
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Andrew Domino, Adam Thornber: Collections and recoveries - how to improve commercial performance - lessons from the us and uk market place

  1. 1. Collections and Recoveries How to Improve Commercial Performance, Lessons from the US and UK market place Collections Europe SmithNovak Conference, Prague June 14, 2013
  2. 2. The Evolution of an Attendee T Start Mid Conference Drinks Now
  3. 3. Bridgeforce Limited • Founded in the United States in 2000, Bridgeforce has established itself as internationally respected leaders in evaluating and managing all aspects of lending and payments • We have been working in the Europe since 2001 and opened our London office in August, 2011 • We help many of the world’s most sophisticated lenders of consumer and small business assets to run their businesses more profitably T Coordinated Data and Risk Management Recoveries and Debt Sales Loss Mitigation and Collections Portfolio Management Underwritin g Marketing and Prospecting
  4. 4. Today’s Session With reference to a series of case studies we will discuss: •The commercial returns of creative forbearance •How to use customer incentives effectively •Which metrics to target and why •What to do with mortgage shortfall recoveries We will also talk about what’s on the horizon from our experiences in the UK and US market place
  5. 5. Case Study #1 Problem: Aggressive litigant with limited forbearance solutions, poor Collections contact process and property sales function This compounded the challenge of a high LTV portfolio and led to an average loss on repossessions of ~£40,000 No treatments for customers who had suffered a lifestyle event or loss of job Client Top 10 UK mortgage lender Assets >£50 billion Collections Customers >50,000 Loan Impairment >£1 billion per annum
  6. 6. Case Study #1 Approach and Solution: Feedback solicited from collectors and customers determined that a change of mind set and strategy was required to improve results: •Launched new forbearance solution with interest reduced to a minimum of 2% on secured lending and 0% on unsecured lending •Clearly defined contact strategy during period of forbearance •Established customer behavioural expectations to ensure the long term affordability of their mortgage Client Top 10 UK mortgage lender Assets >£50 billion Collections Customers >50,000 Loan Impairment >£1 billion per annum
  7. 7. Case Study #1 Results: 2,500 of 7,500 applicants took the product up with the following outcomes: Client Top 10 UK mortgage lender Assets >£50 billion Collections Customers >50,000 Loan Impairment >£1 billion per annum • <5% failed and were repossessed • <5% remained in arrears • ~30% renewed at preferential rate • ~60% cured
  8. 8. Case Study #1 Benefits: •Impairment saving per successful case >£30,000 •Customer indebtedness down by 33% and bureau score up by 15% •~£50 million impairment benefit on an investment of ~£1 million •Improved reputation with the Debt advice industry, regulator and press •Empowered Collectors Client Top 10 UK mortgage lender Assets >£50 billion Collections Customers >50,000 Loan Impairment >£1 billion per annum
  9. 9. Case Study #1 Client Top 10 UK mortgage lender Assets >£50 billion Collections Customers >50,000 Loan Impairment >£1 billion per annum
  10. 10. Case Study #2 Problem: One size fits all approach to Collections ‘marketing’ activity, tone and content of communications dictated by age and delinquency status of debt Low response rates and poor returns on investment for marketing spend Client Top 5 US commercial bank Assets >$300 billion Collections Customers >500,000 Loan Impairment >$3 billion per annum
  11. 11. Case Study #2 Approach and Solution: Redefined the desired outcome of marketing activity to: •Offer a specific solution, not a general consequence •Drive high quality inbound conversations Appointed a collections marketing manager Segmented customer base and tailored communications to target customers with explicit ‘offers’ via different contact methods Used Champion Challenger methodology to constantly evolve strategy Client Top 5 US commercial bank Assets >$300 billion Collections Customers >500,000 Loan Impairment >$3 billion per annum
  12. 12. Case Study #2 Results: Dramatically increased response rates: Up 400% Inbound calls from customers regarding the specific offers sent, not to simply ‘discuss their account’ Positive outcomes and conversion rates increased, leading to: • 156:1 return on investment for Collections communications • Average incremental benefit gained from each response of $113 • Increased right first time resolution • Reduced repeat inbound telephony traffic ~$50 million benefit gained to date Client Top 5 US commercial bank Assets >$300 billion Collections Customers >500,000 Loan Impairment >$3 billion per annum
  13. 13. Case Study #3 Problem: Collections function where staff had 16 key performance indicators (KPI) to achieve and an operation which measured effort more than output Client Top 5 UK mortgage lender Assets >£80 billion Collections Customers >70,000 Loan Impairment >£500 million per annum
  14. 14. Case Study #3 Approach and Solution: Went back to basics to define a Collector’s core competency as: •Making commercial, sustainable, compliant agreements with customers •Identified 5 KPIs clearly linked to this desired outcome Published Collector league table of these metrics linked to capability management process Targeted average value of arrangements and percentage of concessions Linked Collector outcomes to tangible financial impacts for the Company Client Top 5 UK mortgage lender Assets >£80 billion Collections Customers >70,000 Loan Impairment >£500 million per annum
  15. 15. Case Study #3 Results: •Concessionary arrangements down 65% •Average arrangement value up 20% •Kept rate up 10% •Healthy competition between teams •More timely capability management Client Top 5 UK mortgage lender Assets >£80 billion Collections Customers >70,000 Loan Impairment >£500 million per annum
  16. 16. Case Study #3
  17. 17. Case Study #4 – Mortgage Shortfall Problem: Rapidly growing mortgage shortfall book with single treatment and contact strategy, high average balance and no segmentation of debt. This debt class was an unknown quantity and had not been collected on in any volume since the last UK property crash in the early 1990’s. Client Top 10 UK mortgage Lender Recoveries Assets >£2 billion Recoveries Customers >40,000 Average Balance ~£50,000
  18. 18. Case Study #4 Client Top 10 UK mortgage Lender Recoveries Assets >£2 billion Recoveries Customers >40,000 Average Balance ~£50,000 Mortgage Shortfall Recoveries: General Considerations • Contact is difficult: ~90% of customers are never contacted after loss is crystallized • Recovery rates are low: ~3% is a good portfolio return • Larger debts require realistic repayment timescales: Potentially longer than the original term • Margin call: Efficient and effective management maximises returns. Don’t throw good money after bad • Mortgage shortfall is an unknown commodity: Relatively few purchasers mean prices are typically low • DCA Commissions are high: ~25%+ for first placement and ~40%+ for second placement
  19. 19. Case Study #4 Client Top 10 UK mortgage Lender Recoveries Assets >£2 billion Recoveries Customers >40,000 Average Balance ~£50,000 Monitor and Break In 0-18 months Golden Years 18 – 48 months Diminishing Returns 48 months + Let’s look at a typical recoveries cash curve •The red line tracks the operational costs of recovery •After 6 years of activity this operation has made a margin of only 6% As you can see, the typical financial performance of a recoveries portfolio is not linear In fact, it can be split into three main phases with different recommended objectives Situation Customer has suffered a financial trauma, the relationship between the customer and lender has changed with limited additional insight (address, phone number etc.) Significant lag before customer’s ability to repay recovers and they reappear on the grid Objectives Preserve the value in the portfolio, limit expense, monitor external data sources Complete NPV modelling and sell low value shortfalls into the unsecured debt sale market Objectives Build up a cash curve including low value high kept rate ATPs, balance cost to collect Promote settlements with lazy payers, broken ATP cases or those with a reluctance to pay Utilise spend selectively – if a customer can’t afford to service the debt, stop activity Litigate on a commercial basis Situation Customers appear on grid, showing some level of financial recovery Customer engagement and in-house activity leads to outcomes for segmentation Decision point – continue in-house recovery or reduce costs by placing with a Debt Collection Agency Situation Stock and opportunity is reducing due to settlements and uncollectable debts Objectives Protect margins by scaling back activity, preserve income streams from cultivated arrangements and minimise costs through automation and outsourcing Complete a backend debt sale to dispose of assets or placement for non-contactable cases, know when you should stop and when you have to stop (Statute of limitations) Now let’s look at the results when we factor in these recommendations •After 6 years of activity this operation made a margin of ~19%, equating to an extra £475,000 in cash from this segment of their portfolio
  20. 20. What’s on the Horizon? Challenges: •Compliance and conduct risk – US regulators are showing their teeth •Collections cost bases under scrutiny •The rise of strategic defaulters – Jingle mail, stay/no pay, etc. •Striking the balance between loss mitigation, customer retention and future profitability Opportunities: •‘Individual’ contact strategies and multiple channels •Technology advances in automated contact for low risk customers •Mobile payment methods for financially stable customers •Aligning complexity and risk to staff experience and cost
  21. 21. Questions? SmithNovak Conference, Prague June 14, 2013
  22. 22. 22 © Copyright 2012, Confidential & Proprietary Property of Bridgeforce Inc. Bridgeforce welcomes the opportunity to partner with you and your team Contact Information Adam Thornber Senior Program Manager– Bridgeforce Ltd. +44.(0)758.511.3067 athornber@bridgeforce.com Andrew Domino Managing Director – Bridgeforce Ltd. +44.(0)758.796.5715 +44.(0)20.7956.8650 adomino@bridgeforce.com

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