Following up on a feature that appeared in Motor Finance two years ago, Chris Farnell takes a fresh look at the state of the collections industry. There are changes aplenty and several reasons to be cheerful, with some of the seismic shifts being experienced affecting every aspect of the business
When Motor Finance took a look at the collections industry a couple of years ago, the whole market was facing a time of considerable uncertainty.
The FCA had only recently been formed, and collections companies were either learning to adapt to a new regulatory environment or leaving the market altogether. New technologies were being put into action that changed the way collections agencies were doing their work, and the entire market was reshaping itself beyond recognition.
But a lot can change in two years, and some of the areas of real uncertainty back then are now sources for optimism among people in the sector.
“I think that compliance departments have now had time to adjust to the demands of the regulatory regime, and we are beginning to see changes to processes reflecting that,” says Simon Shuttleworth, managing director of Peak Collections.
John Ingram, Burlington Group’s managing director, agrees: “The FCA has certainly had a considerable and positive impact on our market.
“Within the niche space of motor finance collections, there has still been no real test of that impact and the regulator still remains a credible deterrent,” he tells Motor Finance. “Burlington Group is enjoying the resulting commercial environment that has been created, and we are looking forward to the next couple of years ahead.”
But things are not immediately that straightforward, and as Ingram rightly points out, while the outlook is optimistic, the car collections sector is treading new ground, with many of the effects of the FCA’s foundation remaining to be seen.
“The motor finance collections sector is in an interesting place at the moment, and the operators have found themselves in uncharted waters,” he says. “We are now in a position where it has been almost three years since the FCA took over regulation of consumer credit from the OFT. In some cases that impact will only have become real as little as a year ago due to the effective gradual onboarding process created by interim permissions and associated landing slots.”
Companies are running to catch up and adapt to the new circumstances, but cosmetic changes are not going to be enough. As Ingram points out, many companies have had to be reshaped from the ground up. “Those businesses operating today in the motor finance collections niche of consumer credit have evolved considerably,” he points out. “The culture within those businesses and, perhaps even more importantly, the cultures and expectations of their lender clients have changed and created a significantly more sophisticated, complex and exciting operating space.”
A pond for the big fish
Not every company wants, or is able, to change that quickly, and a lot of companies, particularly smaller operators, have disappeared from market thanks to the new regulatory environment. This has been commented on for a few years now, and the trend has continued towards “bigger is better”, as Shuttleworth explains: “The market has continued to consolidate, with many smaller players leaving the market.”
Ingram also believes the changes in the market ecology are a side effect of the new regulatory burden. “The biggest issues affecting motor finance collections can all undoubtedly be traced back to compliance – some issues more obviously than others,” he says.
“The evolution of compliance has created new permanent cost centres within motor finance collections businesses. The investments required in the sector have been both unavoidable and significant, and operators have had to look carefully at their businesses to ensure profitability is maintained whilst delivering evidenced and measured high standards against new-world KPIs.”
He speaks from experience, as managing director of a company that was subject to acquisition only a year and a half ago and is now reaping the benefits. “Following Marston’s acquisition of Burlington Group some 18 months ago, the business now has a 25-plus FTE compliance team including our national field audit team,” Ingram says.
“While this helps us to deliver exemplary standards as a business, there has been a resulting margin impact which drives the need to operate a volume model to sustain profitability.”
The upshot is that motor finance collections is a sector that is harder to break into, but those Motor Finance talks to are not convinced this is necessarily a bad thing.
“The resulting barriers to entry are now higher than ever before within our sector, not only with the obvious challenge of achieving initial authorisation but the financial investment required to achieve ongoing regulatory compliance and maintain client relationships,” Ingram says.
“A considerable amount of consolidation has occurred, and for the better. Lenders have been looking at suppliers from the outside with deeper scrutiny and enhanced procurement demands, and the vast differential across the operators within the sector quickly became apparent.”
Meanwhile, those operators who are leaving the market are the smaller and less-professional outfits that lack the resources and ability to reach the expectations that are now considered the standard in the industry.
Appropriate levels of regulatory skill and experience did not exist within the management teams of many of the established motor finance collections businesses, but as Ingram points out, those skills are now required to ensure sustainability of their business models.
As well as continued consolidation, one of the ways that companies are adapting to the increased compliance and transparency required of the industry is by putting the power of technology to use. Not only can it make compliance easier, it can make the company as a whole more efficient. Peak Collections has certainly benefited from well-applied technology.
“Our bespoke case management system enables us to provide seamless systems integration with most of our clients, as we can tailor our interfaces to cope with client systems,” Shuttleworth says.
“This takes out the possibility of human error in data loading and dramatically reduces admin workloads for us and our clients, with new cases automatically loaded overnight and existing cases updated to client systems. It enables us to only manage cases that threaten to become exceptions to the particular client workflow, improving efficiency.”
The advantages to companies in this regulatory environment are not lost on him either, as he adds: “This also enables us to automate regulatory evidential requirements and to link workflows to our ISO:9001 procedures.”
One company that is particularly well positioned to see how technology is changing the collections landscape is Noble Systems. Sian Ciabattoni, the software company’s marketing director, explains: “Noble Systems is seeing increased demand in omni-channel communication, allowing customers to choose the optimum channel to communicate with their creditor, whether that be via voice calls, SMS, email or web chat.
“These consolidated channels give the customer the flexibility to communicate effectively, increasing contact and ensuring availability.”
These solutions increase pressure on creditors to unify their suppliers and vendors to provide them and their agents with what Ciabattoni describes as “a unified 360-degree view” of the end customer.
Uniting all their communication streams has regulatory advantages, as well as being more convenient.
“Noble is seeing a shift in customers choosing different suppliers for inbound voice, outbound voice, SMS and email to bring it under the control of one single platform – allowing a consolidated customer view and clearer reporting” Ciabattoni says.
“Providing the customer a choice in their communication channel and delivering information to the agent at the correct time both support the FCA’s Treating Customers Fairly guidelines.
“Noble is also seeing increased interest in interaction analytics, as it enables creditors to understand how they treat customers, and also highlights any compliance risks. Interaction analytics monitors 100% of voice, email, SMS and web chat within contact centres, allowing creditors access to information previously unavailable. This improves productivity, compliance and fair customer treatment.”
Burlington Group has also recognised the growing role of technology in the sector, and Ingram acknowledges the huge impact that developments in technology are having on the collection sector’s work, and its compliance efforts.
“Technology plays a huge part in our world; it has been embraced by our group to an award winning standard in evidencing compliance, enhancing efficiency and, of course, managing conduct risk,” Ingram says. “All of Burlington Group’s field officers agents are equipped with state-of-the-art video technology that has recently been even further enhanced. The video badges work in tandem with specially equipped laptop computers, which dramatically speeds up the process of sending footage from the field to our case management team by enabling the encrypted data to be sent wirelessly, straight from the officer’s location.”
Burlington Group has invested over £3.5m in the development of its unique Columbus technology platform, designed to specifically meet its clients’ collection requirements.
“Our purpose-designed technology platform, complete with configurable case management, automated workflows and smart mobile services, continues to produce faster results and true field effectiveness,” Ingram says.
“Our group IT team is currently building a new motor finance collections module to sit within our Columbus technology platform to harness the efficiencies and benefits of the data that sits across our wider group.”
Changes in technology
But the technology in the sector is still undergoing huge changes. Noble believes that the next big development will be real-time omni-channel analytics, where analytics reacts in real time to web chats and calls while directing information to agents to ensure increased customer service, fairness and compliance.
The system will, they say, automatically move a call from a basic agent to a more experienced agent or to a risk assessor to handle what’s being said in real time and enhance the experience for the end customer. Real-time script push can also help the agent provide enhanced customer service.
Peak Collections, meanwhile, is investigating a number of different new tools and weighing their benefits for the industry. Shuttleworth says: “We are currently coming into the testing phase of several field apps that interface with our case management system, which will further automate our processes and enable dynamic real-time progression of cases, across our clients and our systems, including linking to disposals departments and auctions. All of this shortens the end-to-end process of cases.”
These apps include one that allows field staff to quickly interact with the case management system by recording actions such visit types, calls and reports.
“This will enable us to easily monitor numbers and types of visit on each case, and the time spread of them for internal exception reporting,” Shuttleworth says.
“Another is a vehicle condition report (VCR) app. This will enable a much more detailed VCR, including photographs, and will load individual field data into our case management system automatically. This in turn will further automate back-office processing depending on the data submitted, and can also interact with third parties.”
Overall, Shuttleworth appreciates the new market environment, particularly rising compliance and customer expectations.
“Clients are increasingly looking for suppliers that are large enough and well established to provide full compliance and who can monitor best practice across the industry, through a broad spread of clients,” he says. “This has had a beneficial effect of raising professionalism.”
This is fantastic news for companies that had already placed a premium on transparency and compliance, as they see a newly levelled playing field.
Ingram believes the trend towards consolidation is set to continue, driven by the ongoing lender procurement cycle for the next two years as the existing three-to-five-year contracts are renewed and tendered for. Both Shuttleworth and Ingram are expecting to see a stronger and more unified market moving forward.
“There are also indications that supervision will take an enhanced FCA focus now that the wave of consumer credit authorisations has passed,” Ingram says.
“Once the focus of supervision takes hold and longer-term financial impact takes its toll, we anticipate that consolidation will continue and leave a handful of stronger and more competitive service providers, all of which will of course ultimately benefit the consumer.”
Shuttleworth sees the trend continuing as well, adding: “We are seeing clients moving towards suppliers that fully employ their field staff, rather than use self-employed agents, although there are still suppliers out there using the self-employed model.
“We believe that technological innovation will also become a major factor in integrating systems and progressing cases across various client and supplier systems.”