Survival Tips to Weather the Economy for Bankcard/Credit Card Agencies

We all know the saying; “only the strong will survive – and the weak will go under.” That couldn’t be more the case on this rollercoaster ride we call the U.S. economy and its impact on collection agencies – specifically those focused in the bankcard/credit card arenas. 

We heard it on our Executive Conference Call last month, when a listener called in and confirmed that in some cases, liquidations on primary credit card paper were off 40-55% compared to last year. This is just the beginning. With the unemployment rate rising and predictions that it could reach double digits by year-end, recovery efforts could be further dampened this year.

Are you positioned to not just survive but to grow in this turbulent time? Here are a few thoughts to consider: 

Expand into First Party Services
Credit card issuers want to stop the bleeding faster and their internal units are flooded with volume. Issuers are looking for agencies that can help them attack fresh delinquencies earlier in the lifecycle or simply complement their internal unit by helping with reminder calls if a consumer misses a payment. You may not be equipped with the talent or the infrastructure to work in this environment – especially if your main focus is late stage, high balance contingency collections – but what you can do is begin to build out a separate unit specifically dedicated to first party and bring in the right talent. 

Keep Performance Rankings Up
Your client today might not exist to be your client tomorrow (witness Wachovia, National City, etc.). We will likely see more bank failures and consolidations, making it critical to be competitive on your performance rankings. We have seen this with other issuer and bank mergers; the acquiring company tends to keep the top performers from the agency network as they combine the recovery groups. I am not suggesting that you throw every collector at the paper, making it not profitable to work the business (refer to my next point), but I am suggesting that performance will play a role in whether or not you will have a shot in keeping the business after a merger, once the combined entity figures out how the recovery group will be set up.

Work Profitable Business
We continue to see agencies in the bank card/credit card markets that have a great list of “blue chip” clients but they are not generating a meaningful profit – if at all – and in many instances, they are losing money working the inventory. Work with your sales and operations teams to create a minimum fee and profit requirement for each existing client and any new client that you consider bringing on, and work to exceed those requirements. We all know that most new clients are not profitable for 3-6 months or more as you ramp up. However, with the economy in a tailspin, if you are not seeing signs that the quality of paper is improving and the fee rate you are getting is not enabling you to generate a profit, consider renegotiating your contingency fee, ask for a change in inventory, or cut the cord with the client!

Consider Strategic Acquisitions
For those agencies who have available cash on their balance sheet or have strong banking relationships, there are numerous opportunities to acquire smaller agencies that in some instances are distressed (which can be purchased at a discount) to expand into new markets, gain additional market share, or expand geographically. As the bankcard/credit card market has been taking such a hit with rising inventory that is less collectible, some agencies are pursuing acquisition targets outside of bankcard/credit card and expanding into new markets such as healthcare, commercial, utility, telecom, and student loans to diversify.

Off-Shore/Near-Shore
Going near-shore/off-shore doesn’t happen overnight but it should be considered as a viable option to drive down costs. It takes a lot of time and testing to get it right whether you are building an operation from scratch or working with a proven vendor with experience.  If you want to increase your chances of success, plan to do a beta test and do an apples-to-apples comparison of your performance vs. the other entity and take thirty to sixty days to see if it will work with the volume you plan to send them. We are seeing that many agencies are looking to just send later stage, heavily worked debt purchase paper, which is challenging to collect in any market. In my opinion, the earlier-stage paper the better! Send over inventory that you would put a U.S. agent on to collect and would also be successful meeting monthly fee requirements.

Sales, Sales, Sales
We are seeing some agencies go under in this market, which leaves gaps in agency networks. Your sales team has the opportunity to go in and obtain new client relationships – especially with issuers and financial institutions that need help dealing with the substantial increase in volume. Credit card issuers need and want agency help right now, and many were not able to sell their portfolios to debt buyers at favorable prices in Q4, making contingency agencies even more critical to their recovery strategy in 2009. Your sales people need to be aggressive to locate good and profitable client opportunities in a down market!  

Invest in Technology

I know it is last on the list but absolutely critical. Getting to the right accounts that have a higher propensity to pay is the name of the game. The only way to do this is by continuing to invest where appropriate in predictive analytics, scoring and systems that can help management run your operation and be able to change collection strategies quickly to adapt to the ever-changing economic climate.

How are you positioning your bankcard/credit card agency in this market? How you surviving and what are your plans for growth in these turbulent economic times?  I look forward to hearing your thoughts/commentary.

Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg. Michael can be reached at 240-499-3808 or by email.