Credit crunch yet to bite, says consumer debt industry

Research sponsored by Firstsource, a global business process outsourcing company, indicates that the credit crunch has not yet had a major impact on the consumer debt management industry. More than a quarter of respondents (26 per cent) said they had not been affected by the declining economic environment, and over half (53 per cent) reported that they had monitored only minimal impact.

The poll covered nearly 1,000 consumer debt managers of companies in the financial services, telecommunications, retail, and utility industries.

However, although debt managers say they have not yet been significantly affected by the credit crunch, the research showed signs that consumers are starting to take longer to pay their bills, and that write-offs of consumer debt are increasing. Twenty seven per cent of respondents said that some consumers are delaying payment of bills by up to three months, and twenty two per cent of debt managers reported that they had increased their write offs of customer debt in the last 12 months.

In response to the uncertain economic outlook, debt managers expect to outsource more work to specialist collections and recovery agencies to increase their collections levels, reduce defaults, and lower their costs. Sixty eight per cent of debt managers said they planned to increase their use of outsourcing within the next year; 27 per cent said they would outsource more within the UK, 18 per cent reported they would collect more from offshore, and 23 per cent expect to outsource more both within the UK and offshore.

Matthew Vallance, Firstsource’s President, said: “Although most consumer debt managers report that they haven’t been rocked by the credit crisis, the trend amongst consumers is towards later payments which will consequently affect cash flow. Therefore debt managers are looking to specialist consumer debt collections and recoveries outsourcers in the UK and offshore that have the expertise and resources to collect more debt, in faster time frames and at lower cost than is possible in-house.”

Debt managers said that the main benefits of an offshore strategy are further cost reduction, the ability to recover more debt, and increased access to talent.

Most of the collections work that has been outsourced to date is debt collection (35 per cent of respondents), tracing (identifying and prioritising debtors to contact, 25 per cent) and legal collections (24 per cent). The majority of outsourced collections relates to early stage work (debt that is one to 60 days old, 42 per cent of respondents), followed by recoveries (six months, 26 per cent), late stage (90 to 180 days, 21 per cent), then mid stage (60 to 90 days, 10 per cent).

Respondents said that there were many areas where they could see obvious rooms for improvement in their collections strategies. The main failings relate to poor use of technology. Over half of debt managers said greater use of online payment systems would improve their collections levels. Many managers also felt that they should make more use of interactive messaging and interactive voice recognition systems. Better analysis of customers’ debt levels and internal training were two other key areas identified for improvement.

About Firstsource
Firstsource (www.firstsource.com) is a global BPO (business process outsourcing) service provider headquartered in India with operations in India, US, UK, Argentina and Philippines. Firstsource provides customised business process management to the world's leading companies in Banking & Financial Services, Telecom & Media and Healthcare sectors. Its clients include Fortune 500 banks, telecommunications companies and healthcare companies. Firstsource is listed on India's leading exchanges, the NSE (NSE:FSL) and the BSE (BSE: 532809).

Firstsource has an established collections and recoveries practice, providing the full life cycle of collections and recoveries services from early stage collections to third party recoveries, to a wide range of financial services, telecommunications and utilities companies.

Amongst Firstsource’s client list is the credit card operation of a leading UK retail bank. Firstsource collects more than £2.5m per month, with Firstsource agents making between 34-40 calls per hour, collecting on average £550 per hour, with a promises kept rate of around 70 per cent. Average kept value of each call is £260.

For a major UK telecoms company, Firstsource makes 6-7,000 outbound calls every day and has radically improved collections rates, achieving the highest collections per day compared with the in-house operations.

Survey methodology

956 senior professionals from the consumer credit industry took part in the online survey which tool place in April 2008. The types of businesses polled included banks, mortgage lenders, finance companies, utilities companies, credit card operators, insurers, retailers and telecommunications companies.