The World Wide Web of Collections

A debtor named Jane logs on to a Web site at 11:45 one Wednesday night to satisfy her debt. She enters her account identification number and is greeted by Mya, a photo-realistic avatar that steps her through the payment process, answering any questions Jane might have along the way. She eventually enters her credit card number in the secure web site and in seconds the payment is processed and the account is satisfied.

Jane, a 26 year-old, single, employed college graduate had been barraged by collection calls recently as a result of debt she incurred from a credit card she opened while still in school. The outstanding past due amount lingered and festered, as she went from making only partial payments to skipping payments altogether.  Eventually, the bank charged off her account, with a balance of $3,500, and sent it to an external collection agency.

As is the case with many debtors, after receiving initial collector calls requesting “payment-in-full”, Jane began avoiding subsequent collector calls.  While the collector that contacted Jane was professional and courteous, Jane was embarrassed by the position she found herself in, and so for weeks she dodged collector calls.  However, Jane did receive a collector notice in the letter from the collection agency working her account suggesting potential settlement of her outstanding credit card debt.  Instead of calling an agent, the letter offered her the option of handling the matter by visiting their Web site and entering a special code unique to her account.

That’s when she first meets Mya, a virtual collection agent. By executing carefully crafted scripts and client account parameters, Mya guided Jane through her options.  Upon, Jane sharing with Mya that she was not able to pay the balance in full, Mya suggested a possible settlement arrangement.  If Jane could pay $2,400 today (about 70 percent of the outstanding balance), the account would be satisfied.  Jane agreed, and from there, Mya took her through on-line payment execution, and the matter was resolved.

If the above seems like the insane ramblings of a poorly-adjusted futurist, think again. This is happening right now.

As consumer attitudes shift with changing demographics, lenders and accounts receivable management companies are finding it harder to reach the right parties for debt payment. And when a right party contact is made, many consumers are embarrassed to admit they might have made a misstep in their personal finances.

Consumers Are Different

Whether it is the result of a demographic shift or due to the worst economic downturn in generations, consumers and their payment patterns are different than they were just a few years ago.

A recent study by Trans Union showed that consumers are increasingly paying off credit cards at a much faster rate than mortgages. In the second quarter of 2010, credit card delinquencies plummeted more than 21 percent when compared to the year-ago period while mortgage delinquencies increased nearly 15 percent.  Meanwhile, according to a recent survey by u.switch.com, the stigma associated with filing for bankruptcy is declining, with 1-in-5 saying that filing for bankruptcy is nothing to be ashamed about.

There is little doubt that the recent, prolonged and historic downturn in the housing market is one of the primary drivers of this shift in payment.  Consumers consider keeping current on an underwater mortgage to be throwing good money after bad, and if they have an option, will satisfy other debts before addressing a home loan. But most consumers are more aware of credit scoring now than ever. So staying current on certain loan types, like credit cards, seems to be a priority.

In the example above, Jane might have been embarrassed to be in arrears on her credit card, but she still knew she needed to pay off the debt, and she had the means.  It just took the right type of communication, at the right time, to push her over the finish line.

“We have an entire generation of consumers that have grown up on the World Wide Web, and many more generations that are becoming converts every day,” said Robert Fite, vice president of LexisNexis® Receivables Management Solutions. “As such, providing Virtual Web Agents for customer engagements is a natural next step in evolution of customer contact.”

One of the challenges with traditional on-line payment portals is that there is a very high drop-off and non-payment rate. Historically, these portals have not effectively engaged the customer or made the experience compelling enough to maintain their attention through the process.  After all, how compelling is a screen simply asking for credit card information? The more compelling and engaging the online experience is for the customer, the greater the chances are the customer will engage in a payment transaction, and will return again for future payment transactions. Virtual agents seem to be an effective approach to filling the engagement gap to complete the process.

Contacts Are Different

Credit applications have always required extensive contact information, for good reason. Telephone number and mailing address are a given. But now, there other contact fields that are being requested on most credit applications, specifically email address and cell phone number. Legal disclaimers in the applications also include permission to use these methods for contacting the account holder.

In the case of Jane, if she had supplied her email address on the credit card application, as part of the cardholder agreement this contact information disclosure could have been leveraged to contact Jane via her preferred method.  The creditor and/or the collection agency could have easily (and cost effectively) sent Jane an email directing her to the payment portal site, hosted by Mya.

Consumers increasingly prefer a more hands-off approach when it comes to financial messaging. A study conducted by Adeptra in August 2010 revealed that 86 percent of banking customers prefer instant, automated messaging over call center agent messaging for urgent notifications, including alerts of suspicious account activity. The channels listed as automated in the study included email and SMS text alerts.

While a bank alerting a customer to suspicious account activity is a far cry from getting a call from a debt collector, it’s clear that consumers are now trending towards being contacted via emerging new contact channels, and have no problems conducting commerce on the Internet.  One need only look at the success of Amazon.com to reach that conclusion.

Email and SMS texting are currently the only channels that will allow for a direct link to a payment portal. A URL can be included in a letter, but the likelihood of uptake is much less when compared to a live link.

With more than 20 percent of consumers living in mobile phone-only households, texting will be an important part of the self-cure equation. But current regulations on communication prohibit contact on cell phones, or at the very least, present an ARM firm with a question of ambiguous liability. So email as a collection channel is one that is ripe for growth.  Especially given the cost of leveraging the email channel versus traditional U.S Postal Service is very compelling.

The Internet, and the various technologies it has spawned, is an important part of nearly everyone’s daily lives. This includes collectors.

Although recent headlines have focused on some of the more salacious uses of the Internet by collectors (“Collectors Using Facebook to Hunt Down Debtors!”), a more careful and prudent strategy is developing in the ARM industry. Using email to drive consumers to self-cure on a Web site that is driven by client criteria and debtor real time interaction is certainly a growing part of that strategy.