IT'S TIME FOR THE COLLECTION INDUSTRY TO PLAY OFFENSE

"A vivid example of the pitfalls of sticking to the conventional game plan in times of change, occurred in football just after the turn of this century. In 1905, football was a low-scoring game, of running and kicking. In 1906, the forward pass was legalized, making it possible to gain 40 yards with the flick of a wrist. During the first season, most teams stayed almost entirely with their conventional, tried and true running game. Recognizing that the old strategy of "three yards and a cloud of dust" would soon become obsolete, St. Louis University's coaches adapted quickly. That season, their offense, using the forward pass extensively, outscored their opponents 402-11!"

That was from Robert J. Kriegel's "If it ain't broke.... BREAK IT!" In 1992, that was my inspiration and playbook for everything we did at Quantrax.

The collection industry is an old one. One of our early clients was Merchants Credit Guide in Chicago. Ed Burtis proudly told me in 1991, that their agency was 100 years old. I have seen an industry evolve from manual card systems through automation, to now be talking about the potential of AI. It's time for the industry to modernize its thinking, its processes, and its technology, and let the world know.

THE SACRED COWS

The collection industry can be described as essential, complex, regulated and cautious. We were cautious, or was it paranoid, to decide that we should not text consumers even though Domino's Pizza and our hairdresser had been texting us for several years. Lawsuits were like ghosts. Most had never seen one, but everyone was afraid of them. The industry had never seen a multi-billion dollar lawsuit, but we were more cautious than the tobacco industry whose 1998 settlement was to pay the states $206 billion. Today, cigarette smoking kills 1,300 people a day and if this article makes you give up, we have had a major impact on the industry. People are dying but we do not hear of lawsuits against the tobacco industry. And in the collection industry? Lawsuits are likely to spike before they go down. Why? Is it the sacred cows? Traditions? Fear? Resistance to change? Tail wagging the dog?Unfortunately, there are many theories, not enough answers, and we are running out of time. With that background, let's ask ourselves what we must do.

THE NEXT GENERATION OF LEADERS IS ON THE WAY

Lighter, hollowed wheels were "invented" around 2000 BC, but the first successful patent on wheeled suitcases was granted in 1972. Aren't humans supposed to be the smart ones? Or were we just slow to connect the dots? We took a survey and it turns out that most people preferred to plead guilty to being slow than bubble-headed.

Everything around us has changed in the last 20 years. The way we communicate, the consequences of a computer in your hand (your mobile phone), a new workforce and a younger generation of management that does not believe in details or printed reports, and is privately amused at our perceived inefficiencies (Do they want us to forget their young thinking that lost 1.7 trillion in the Dot.com crash of 2000?). Much of the world is not ready for radical millennial interactions that "no longer require talking to each other, because there is text and Facebook messaging". We knew all this. But when did the collection industry ask the question "How do we need to change to thrive in this new world?" Many will say that we did change, making incremental changes in the last 15 years, just as Nokia, Blackberry and Blockbuster once did, against innovative, and competitive technologies like the iPhone from Apple and Netflix. Did it work for Nokia? The mobile giant's market share fell from 50% to 3% in 5 years. The reasons that include complacency, arrogance, business, and technical failures, have become case studies in business schools.

From some of the ashes, a new generation of technology leaders was born - Apple, Microsoft, Google, and Facebook. Some founders were in their 20's. How many 20-year-olds own a collection agency? Are we connecting the dots? It will take new leadership and thinking to win this new race, if we will accept that the fine "art" of collections is no more, and has evolved into a high- volume numbers game requiring advanced automation, analytics, artificial intelligence and "anywhere-anytime", powerful, self-service options.

IT'S TIME BRING OUT OUR OFFENSE

The game is tied, there's a minute to play in the 4th quarter, and you've got the ball back, at your 20-yard line. Do you throw the ball down the field and play for the win, risking a fatal interception, or do you play safe to win in overtime?

Fortunately, the collection industry knows its enemies. We may be our worst enemy but there are predatory consumer attorneys, legislators, labor shortages and falling profits to also deal with. In the 1980's, computer manufacturing, retail sales and the auto industry faced powerful competition and large losses. As we always do, we fought back. Dell pioneered "Just in time" (JIT) to deliver its computers at the right place and in the right time. Companies like GAP Clothing adapted their business models to increase item availability at lower costs, while US auto companies built robots to compete with the Japanese. Meanwhile, IBM applied business intelligence to help lower crime in New York.

What was the common denominator in those different success stories? It was technology. It radically changed each of those industries and brought us back to a position of dominance in technology innovation and use. What lessons can the collection industry learn from those examples? History does repeat itself, and those who are unwilling to think in unfamiliar ways may quickly find that it is "too late to change".

We have to make things happen for us. How often do you hear that an agency has been sued? How many times have you heard of a new idea to fight back against, and prevent these lawsuits? Collections is a technology business, and it is the time to objectively review our technology options.

• We must seek and deploy the best collection technology, to serve us today and into the future. With over 20 years of experience, every collection software vendor has a working software platform. What is the difference between the products offered? The way they do it, with vastly differing collection results and operating costs.
• Do not be distracted by a vendor's reputation or "sunk cost fallacy". People have moved on and software had aged. Everything has changed. The $3m you spent in the last 20 years is gone. There are no tax advantages today. Your people costs are real and different, and significantly greater than any technology investment you could contemplate. Always evaluate new technology expenses against the benefits of increased efficiencies and lower costs. Great technology is an investment, not an expense.
• Twenty years ago, you could have been in profit-heaven with two large clients, a small, dedicated collection floor, a dialer, a few good supervisors, a small admin team and decent collection software. It was less complicated then, and you did not need "IT people" or individuals who "knew computers". Today, a superior collection software platform should take care of most of your operational needs, including compliance controls, 3rd party integrations, reporting and client service requirements. A technology-friendly, creative, industry-savvy and dedicated "Operations manager" should be able to work with your people and your software company to economically fill the gaps like custom interfaces and reporting. There is no getting away from the need for technology smarts. That does not mean that you need expensive third-party resources. It requires vision, powerful collection software, change-oriented management and modern workflows which are far simpler than conventional processes.
• Think about your people and their compensation. This is 2024. You are competing with Walmart and McDonald's for labor. Bank tellers have been replaced by ATM's and McDonald's is now replacing low-cost labor and drive through's with self-serve kiosks. While the world changes, are you paying commission for agents to take inbound calls and set up payment arrangements that a robot could do all day and night for a fraction of the cost?
• Think about what you sell. Collections? Try again. Customer service? Yes. Today, there are many more customer service and extended business office opportunities than traditional collection jobs. But it's a different world that requires vastly different technology and processes, assuming you want to leverage AI, automation and two-way digital communication channels. You will have to invest, which is a shocking change for an industry that does not like to spend. But guess who has very deep pockets and can not only do that work, but will also cut into your bad debt collection volumes and revenues? Yes, the creditors, and that is not a fight you are likely to win.

How about some unconventional, perhaps radical suggestions?

• If you are an owner, take a 2-week vacation, and tell your leadership team that you expect to come back to some innovative changes that will make your company more efficient. If it makes more sense, give your head of operations a vacation and ask the rest of your team to come up with the revolutionary changes. You may be pleasantly surprised!
• Do business with yourself. Have your team enter a test account for you and have them collect it. Did you get the validation notice? Since you are in your early 30's and don't like to talk to anyone, were you able to use text messaging or a web bot (or phone bot) to interact with your agency? At 10PM, could you have paid, disputed, said you had an insurance, or provided your bankruptcy information to a robot that was as efficient as a mid-level agent? How about talking to an agent and setting up a payment for 3 days later, and asking to be contacted only by e-mail? You later "forgot" to make the payment. Was there follow up the next day? If you got an e-mail, let's assume you ignored that first one. What happened? Did you get a phone call or text message? Yes? You just got rich - Your contact preference was ignored and your agency is going to get a call from a consumer attorney.

And finally, here is a quiz that may shock you.

Get the following information from your collection software. If you cannot get this information quickly, it may be time to start looking for Waldo!

Here is the information you need.

• Total collections for November of last year (A)
• The dollar amount of the November payments that did not have a prior contact (B)
• Divide B by A and you get the percentage of payments without a prior contact (C)
• Number of unique attempts (phone calls launched) in November. Unique means that a single consumer is counted once, although you may have called then 7 times in the month (D)
• Number of unique right party contacts in November. Unique means a single consumer is counted once, though you may have contacted them multiple times in the month (E)
• Divide E by D and you have the percentage of RPC's to attempts (F)
• Subtract B from A. That gives you some idea of the amount collected when there was a contact (G)
• Divide G by E, and it will give you the dollars per RPC (H)
• Review and think about the numbers above, and then pull the same numbers from November, two years prior.

You can use the worksheet below to document your numbers.

Compare the changes in RPC's and dollars per RPC. How about the payments without a contact on which you pay collector commission? Does that help you understand how your business is trending, the changes that have taken place in the last two years, and their consequences?

IN SUMMARY

We live in interesting times. If you always see the glass as half-full, Regulation F brought the industry new and exciting opportunities. It also brought us the predictable challenges. It could be argued that we are paying the price for "traditional thinking" and tech companies failing to predict the obvious.

• We are a reactive industry
• We don't spend unless we absolutely must, and
• We usually think short term, paying little attention to where we could be, or want to be in 12 months.

It's time to evaluate conventional wisdom. It's time for everyone to take responsibility for our destiny, and make an investment in the future of the industry. If short-term sacrifices are called for, let's share the costs and the pain. We cannot double down on our mistakes. There are usually good reasons why great innovations fail. Sometimes, we create solutions before identifying well-defined practical problems that require those solutions. Finding wide-ranging use for Generative AI within collections, may be a good example. Technology vendors may be forced to reinvent themselves and objectively invest in their products. Agencies must consider the advice and options with open minds (and sometimes, open check books). We need new ambassadors to speak up and advocate for technology changes, transformative education in the industry, and changing the status quo. This is not your father's collection industry, and it's time to play offense. To do that, we need a new offensive game, our special teams and smart plays.

Quantrax Corporation is a technology company that created an intelligent collection software platform over 30 years ago. They believe the ARM industry has been poorly served by collection technology that has not kept up with the great potential of computing power or challenging industry changes. Self-funded, Quantrax has continued to successfully develop and deploy technology that offers modern solutions to old problems.

Ranjan can be reached at?[email protected]

www.quantrax.com – (301) 657-2084

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