TABLE OF CONTENTS. Collection Agency Operations and Technology Survey Page 2 Copyright BillingTree insidearm.com

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2 TABLE OF CONTENTS IMPACT POINTS... 4 INTRODUCTION... 6 METHODOLOGY... 7 COLLECTIONS DEMOGRAPHICS AND GROWTH TRENDS... 8 BUSINESS STRATEGY: OPPORTUNITIES AND RISKS IMPACT ON GROWTH/PROFITABILITY TOP CONCERNS PAYMENT TECHNOLOGY TRENDS PAYMENT TECHNOLOGY USAGE AND ADOPTION TRENDS PAYMENT TECHNOLOGY USAGE BY AGENCY SIZE TRENDS IN FORMS OF PAYMENT CONVENIENCE FEE ADOPTION SERVICE AND TECHNOLOGY NEEDS PAYMENT PROCESSING PRIORITIES CONCLUSION ABOUT BILLINGTREE COLLECTION AGENCY OPERATIONS AND TECHNOLOGY SURVEY 2013 TECHNOLOGY UTILIZATION RESULTS Collection Agency Operations and Technology Survey Page 2

3 LIST OF FIGURES How many agents/seats does your collection agency employ?... 7 What type of debt does your agency collect? Agency Segment Growth Projections... 9 Please rate the importance of each area below as it relates to your agency s projected growth plan/profitability in Please rate your most significant concerns related to your agency s collection operations in How concerned are you with the following in 2013? Technology Utilization, All Seat Groups Technology Utilization, 1-9 Seats Technology Utilization, Seats Technology Utilization, Seats Technology Utilization, 100+ Seats Which types of payments does your agency currently accept? Does your agency charge a convenience fee to consumers? What is the one technology you wish were available to your organization that is currently not available? Please rate the importance of each aspect of your payment processing experience with a payment processor Technology Utilization, 1-9 Seats Technology Utilization, Seats Technology Utilization, Seats Technology Utilization, 100+ Seats Collection Agency Operations and Technology Survey Page 3

4 Collection Agency Operations and Technology Survey 2014 In February 2014, BillingTree, in cooperation with insidearm.com, conducted its second annual survey of collection agency operations professionals. The purpose of the survey was to benchmark the usage of collection technology solutions and the priorities of decision-making accounts receivable management (ARM) professionals and examine year-over-year trends as the industry navigates a shifting business and regulatory environment. IMPACT POINTS Methodology: This benchmark report is based on a survey of over 150 U.S. accounts receivable management companies collected over a one month period. The survey focused on agencies involved in consumer debt and did not include business-to-business collections. Demographics: Respondents were split among four categories; 19 percent of collection agency respondents represented organizations with more than 100 seats, 32 percent with seats, 23 percent with seats, and 26 percent with between 1-9 seats. Importance of Industry Sectors: In aggregate, agencies cited healthcare as their major source of work (62%), with retail as a distant second (41.6%). Compared to 2013 results, revenues related to bank card collections decreased significantly, from a top ranking across all agency sizes to 4th after healthcare/retail/commercial, and on par with utility/telecom and auto finance. These results were consistent with agency predictions from the 2013 survey, where healthcare was cited as a major source of growth; whereas bank card revenue predictions were evenly split between predictions of growth and no growth/decline. Among larger agencies with 100+ seats, bank cards fell from a #1 ranking to #3 behind healthcare and utilities. Interestingly, in 2013, utilities ranked higher among smaller agencies, compared to 2014, where utilities ranked lower and smaller agency revenue sources were more evenly divided among a variety of markets. Business Growth: Strategies and Critical factors: Expanding their client base and cutting costs were the two top priorities of agencies and technology is regarded as having a key role to play in business growth. Respondents regarded strategies to increase operational efficiency/cut costs and tools to increase collections effectiveness as the two most critical actions they could take to meet their business objectives. Not surprisingly, compliance policy and procedure implementation and increased operating costs were seen as the biggest obstacles to growth and profitability. CFPB compliance and legal action were the other major looming threats cited, suggesting that debt collectors are torn between focusing on their core business operations while mitigating compliance risks. The prioritization of technology and operational efficiency suggests that companies see automation as key to addressing these competing priorities. Collection Agency Operations and Technology Survey Page 4

5 Payment Technology Adoption: Based on responses to the kinds of payment methods and technologies in use today by collection agencies, there is room for further automation and optimization, particularly with regard to smaller agencies. The future of payment technology, in terms of how respondents described their 2014 plans, lies in further adoption of online portals, suggesting there soon will be parity among agencies of all sizes. Virtual debt negotiation, however, was actually one area where an anticipated gap will widen between smaller agencies and their larger peers, based on forecasts for technology adoption. Forms of Payment: Paper payments have been surpassed by more convenient digital methods of payment. In 2014, more agencies cited credit/debit card payment via live agent (81%) compared to paper checks (73%), while online payment via credit/debit card ranked third at 68%. Agencies with 10 or more seats were at near parity with their larger peers for online credit/debit card acceptance (an average of 75%), while agencies with less than 10 seats lagged at 52%. Convenience Fees: Taking into account expressed concerns over CFPB compliance and litigation, agencies seem to be weighing the obvious benefits in terms of revenue from convenience fees against the potential compliance and legal risks. Consistent with 2013 results, over half of 2014 respondents charge a fee to offset processing costs for electronic payments. However, remaining consistent with 2013 results, a significant number (47%) do not charge a convenience fee for electronic payments. Payment Processing Priorities: System integration rose in the rankings in 2014, suggesting technology integration has been prioritized as a vehicle to cutting costs while improving efficiency. Integration with their core payment platforms and PCI compliance ranked highest in priority for agencies selecting a payment processor; customer service, system uptime and reporting capabilities came in ahead of per-transaction pricing. Service and Technology Needs: When asked an open-ended question about services or technologies that they wish were available, respondents in 2014 most often cited existing technologies whose implementation was hampered by legal restrictions or compliance ambiguity. This was consistent with 2013 results, where calling cell phones or sending text messages was seen as desirable. As one respondent put it, I do not think it is the technology that is missing, but the legal capacity to use them. Without meaningful changes to the Telephone Consumer Protection Act (TCPA) guidelines, it is not surprising to see the same technology desires met with the same legal obstacles. Collection Agency Operations and Technology Survey Page 5

6 INTRODUCTION This second annual benchmark survey of accounts receivable management companies depicts an industry that continues down a path of economic opportunity, regulatory change and technological advancement. With the U.S. economy another year removed from the recession, collection agencies are leading the way back to a state of revenue growth for the service sector. Continued revenue growth for collection agencies, as expressed by survey respondents, depends on overcoming a variety of obstacles, many of them regulatory. Financial and operational risks resulting from a complex and dynamic regulatory environment represent the greatest challenges faced by collection agencies today. Addressing those challenges diverts time, money and resources from the core objective of efficiently and effectively collecting payments on behalf of clients. In 2013, the anticipated ascendance of the Consumer Financial Protection Bureau (CFPB) and the Fair Debt Collections Practices Act (FDCPA) resulted in collection agencies fundamentally reexamining their collection operations and best practices related to collection authorizations, validation and reporting. That reevaluation extended beyond compliance with federal regulations to state and local government regulatory agencies, as well as credit card companies and their standards and policies. In 2014, three out of the top four obstacles to continued growth cited by agencies were compliancerelated. Compliance policy/procedure implementation/maintenance and Increasing operating expenses ranked #1 and #2, respectively as top concerns, followed by CFPB regulations/audits and FDCPA lawsuits. Clearly, the dust has not settled on compliance issues and concerns for the industry. In this Benchmark Survey Report, BillingTree first examines targeted industry segments and related growth trends according to the size of the agency. Secondly, we explore agencies specific strategies to achieving growth within these segments and to overcoming the challenges they cited as the most likely to impact the achievement of those goals. Finally, we examine agency attitudes toward technology and automation and discuss how automation poses a solution to the dual challenge of driving operational efficiency and innovation while protecting the organization from compliance risk. Collection Agency Operations and Technology Survey Page 6

7 METHODOLOGY Over 150 debt collection operations professionals took the survey over a one month period. Respondents were given 4 categories to choose from: 1-9 seats, seats, seats and 100+ seats. The results indicated the respondent pool was fairly evenly split amongst the four possible choices; 19 percent of collection agency respondents were from organizations with more than 100 seats, 32 percent with seats, 23 percent with seats, and 26 percent with between one and nine collectors. How many agents/seats does your collection agency employ? (n=161) Collection Agency Operations and Technology Survey Page 7

8 COLLECTIONS DEMOGRAPHICS AND GROWTH TRENDS Collection agencies compete in a dynamic marketplace with a variety of opportunities across different vertical markets. In 2013, a majority of respondents predicted growing opportunities in the healthcare market, while agencies were evenly split between those predicting growth and those predicting no change or decline in bank collection collections. In 2014, we saw those predictions affirmed in the survey results. What type of debt does your agency collect? (Please select all that apply) (n=161) In 2014, the most important sector to agencies of all sizes was healthcare by a significant margin, followed by retail as a distant second. Commercial collections, bank/credit cards, utility/telecom and auto sales were all tightly grouped in ranking after healthcare and retail for Collection agencies. Collection Agency Operations and Technology Survey Page 8

9 Rankings of various industry segments were consistent across agencies of various sizes, marking a departure from 2013 when smaller agencies reported a greater dependence on the utility sector as illustrated by the graph below from last year s survey Agency Segment Growth Projections Source: BillingTree 2013 Collection Agency Operations and Technology Survey Collection Agency Operations and Technology Survey Page 9

10 BUSINESS STRATEGY: OPPORTUNITIES AND RISKS IMPACT ON GROWTH/PROFITABILITY When asked to rate the importance of a variety of factors to achieving business growth/profitability in 2014, agencies cited client expansion as an obvious first choice, with cost reduction strategies and new technologies enhancing collections as close second and third choices. These priorities reflect the kinds of challenges that agencies expressed in a follow-up survey question with regard to their biggest concerns. The close ranking between cost reduction and new technologies enhancing collections suggests agencies are looking to automate their operations to achieve greater efficiency. The need for greater efficiency and collections effectiveness is further illustrated by respondents concerns over increased operating expenses and over regulation as manifested in lawsuits. Please rate the importance of each area below as it relates to your agency s projected growth plan/profitability in On a scale of 1-10, 10 being most important, 1 being least important (n=161) Other factors cited by survey respondents reflected a variety of issues related to compliance and changing market dynamics; including CFPB Preparation, Too many regulations, Moving into new sales channels, Diversifying markets, Improved regulatory environment, and More litigation. Collection Agency Operations and Technology Survey Page 10

11 TOP CONCERNS The following graph highlights the driving concerns for agencies in 2014, which center primarily on increased operating expenses and the cost and risk associated with regulation and litigation. Compliance, or the consequences of non-compliance, factored into three of the top four responses to this survey question, with operating expenses nearly tied with policy implementation for the top ranking. Please rate your most significant concerns related to your agency s collection operations in On a scale of 1-10, 10 being most important, 1 being least important (n=161) Other responses to this question included many variations on the theme of compliance as well; including TCPA violations and lawsuits, Frivolous lawsuits, Affordable Care Act, and Unfair attorney advantages. These results are generally consistent with our 2013 survey results, although FDCPA lawsuits were supplanted by compliance policy/procedure implementation as the primary compliance concern. Last year, the potential of lawsuits were regarded as a more imminent concern as the breadth and depth of FDCPA enforcement was unknown. A year later, the concern around potential legal action seems to have subsided; whereas ongoing compliance has risen in priority. Collection Agency Operations and Technology Survey Page 11

12 How concerned are you with the following in 2013? On a scale of 1-10, 10 being most important, 1 being least important (n=154) Once again, correlating the question of top concerns back to factors impacting growth/profitability, we can see that agencies are focusing time, money and effort on compliance and risk mitigation, while at the same time hoping to reduce operating expenses. Collection Agency Operations and Technology Survey Page 12

13 PAYMENT TECHNOLOGY TRENDS PAYMENT TECHNOLOGY USAGE AND ADOPTION TRENDS Compared to last year s survey results, smaller agencies demonstrated they are beginning to catch up with their larger counterparts in regard to online payment acceptance. Projections by respondents for 2014 suggest the digital gap will become even narrower among agencies. That said, there is still room for agencies to further reduce operating costs and to differentiate their services by leveraging technology. Plans for virtual debt negotiation, for example, showed a 147% increase when comparing existing implementations (10.6%) to planned adoption (26.1%). Live agent-assisted payments still dominate as the most common form of collection, with online payment processing ranked second at 67.7%. Phone-based IVR-based payments, surprisingly, ranked much lower than expected, both in terms of current and planned adoption. Our interpretation of this data, relative to concerns expressed in other sections of the survey, suggest IVR adoption may have lagged as a result of compliance concerns. The following graphs illustrate current usage of payment technology by agencies in aggregate, followed by break-out details of usage by agency size. Technology Utilization, All Seat Groups Collection Agency Operations and Technology Survey Page 13

14 PAYMENT TECHNOLOGY USAGE BY AGENCY SIZE When the results were sorted by company size, the disparity demonstrated in the previous year s survey with regard to online payments seemed to disappear. In 2013, less than half (47.4%) of the smallest agencies (1-9 seats) reported use of the online payment channel to collect money, while the majority of larger agencies used web payments (73.2 percent). In 2014, 69% of smaller agencies reported plans to adopt online payments in the coming year, narrowing the gap with the largest agencies at 83.3% adoption. However, virtual debt negotiation was notably one technology where an anticipated gap will widen between smaller agencies and their larger peers, based on forecasts for technology adoption. In aggregate, virtual debt negotiation adoption across agency size was 40.7%. On average, however, only 10% of agencies with less than 25 seats anticipated adopting virtual debt negotiation; whereas nearly 43% of agencies with 26 or more seats predicted virtual debt negotiation adoption. Similarly, plans for adoption of interactive voice response (IVR) technology seemed to grow proportionate to the size of the agency. Over 10% of agencies with less than ten seats, over 20% of agencies with seats, over 40% of agencies with seats and 60% of agencies with 100+ seats indicated plans to adopt IVR technology in A company size-driven discrepancy persisted in the use (or planned adoption) of other emerging technologies like QR code-to-payment, social media collections or alternative payments, although, as predicted in 2013, none of these technologies were close to mainstream adoption. Social media and alternative payment options are largely restricted by limitations and ambiguities related to compliance. QR codes, which allow consumers to scan a printed statement from a smart phone, does not face the same regulatory hurdles and is likely to keep pace with consumer acceptance of QR Code technology. Collection Agency Operations and Technology Survey Page 14

15 Technology Utilization, 1-9 Seats Technology Utilization, Seats Collection Agency Operations and Technology Survey Page 15

16 Technology Utilization, Seats Technology Utilization, 100+ Seats Collection Agency Operations and Technology Survey Page 16

17 TRENDS IN FORMS OF PAYMENT Paper payments remain part of the payment mix, but more convenient methods of payment now dominate. Over 80% of agencies accept credit/debit cards via agent and nearly 70% accept agentassisted ACH transactions. Agencies with 10 or more seats were at near parity with larger agencies for online credit/debit card acceptance (an average of 75%), while agencies with less than ten seats lagged at 52%. As suggested earlier in our survey of planned technology adoption, we expect to see online payment acceptance rise significantly among smaller agencies in 2014 (a 31% increase from adopted to planned), resulting in broader-based online payment acceptance (approaching 70% across agencies of all sizes). Which types of payments does your agency currently accept? (Please select all that apply) (n=161/some respondents chose multiple answers) Collection Agency Operations and Technology Survey Page 17

18 CONVENIENCE FEE ADOPTION Taking into account expressed concerns over CFPB compliance and litigation, agencies seem to be weighing the obvious benefits in terms of revenue from convenience fees against the potential compliance and legal risks. Consistent with 2013 results, over half of 2014 respondents charge a fee to offset processing costs for electronic payments. However, remaining consistent with 2013 results, a significant number (47%) do not charge a convenience fee for electronic payments. Does your agency charge a convenience fee to consumers? 2014 (n=161/some respondents chose multiple answers) 2013 (n=177/some respondents chose multiple answers) In light of CFPB, state regulatory activity and pending state legislation over the course of the previous year, agencies continue to evaluate the topic of convenience fees and surcharges. While 2014 results did not illustrate a meaningful shift by agencies in either direction, the recently passed state regulations and increased visibility of convenience fees may impact decisions over the remainder of Collection Agency Operations and Technology Survey Page 18

19 SERVICE AND TECHNOLOGY NEEDS An open-ended question asking survey participants which services or technologies they wish were available prompted a wide range of responses. Many focused on solutions that are readily available but subject to regulatory restrictions, particularly as it relates to TCPA. This was consistent with the kind of responses gathered in 2013, when one respondent sums things up succinctly by stating, I do not think it is the technology that is missing, but the legal capacity to use them: text, , etc. Beyond regulatory/compliance issues, many respondents identified currently-available technologies that tsimply had not yet been implemented with online payments leading the pack. As our previous inquiry about planned technologies suggest, online payments is highly desired and anticipated by agencies of all sizes. Those who may not already have plans to go online clearly see the need. What is the one technology you wish were available to your organization that is currently not available? Collection Agency Operations and Technology Survey Page 19

20 PAYMENT PROCESSING PRIORITIES If 2014 survey results are any indication, agencies are taking a big picture view towards cutting operational costs as it relates to choosing a payment processing partner. Implementing systems that are well-integrated, secure, reliable and well-supported were all identified as priorities. System integration rose in the rankings from 2013 to 2014, suggesting that leveraging existing technologies and making them perform well together has been identified as key to cutting costs while improving efficiency. Integration with their core payment platforms and PCI compliance ranked highest in priority for agencies selecting a payment processor, with customer service, system uptime and reporting capabilities coming in ahead of per-transaction pricing. The importance of reporting and integration above transaction pricing further emphasizes the importance and value of automation and efficiency to agencies today. Please rate the importance of each aspect of your payment processing experience with a payment processor. On a scale of 1-10, 10 being most important, 1 being least important (n=161) Collection Agency Operations and Technology Survey Page 20

21 Other responses reflected a desire for intuitive systems that are easy to implement and flexible enough to support a variety of payment channels, including responses such as ease of use; implementation time; not increasing costs significantly and mobile payments. Customer service is admittedly a very broad descriptor for a variety of less tangible benefits delivered by payment processors. Customer service is specific to the quality and breadth of support provided by a payment processor as it relates to resolving issues. Beyond issue resolution, it also reflects proactive efforts by payment processors to identify opportunities to reduce costs, improve efficiency and mitigate risk. Collection Agency Operations and Technology Survey Page 21

22 CONCLUSION In the second consecutive year of surveying collection agencies about their prospects for growth and related challenges, a distinct pattern has emerged. Agencies see opportunities for growth. They regard gaining control over operational costs as key to their success. They see communications and collection technologies as useful tools and implementation partners as strategic allies. Their biggest obstacles are the unknowns associated with regulatory compliance and the potential risks that new technologies and collection methods may introduce. When it comes to technology adoption, agencies responded that there remains room for further optimization. Payment methods and technologies in use today by collection agencies varied by agency size, although the gap is narrowing and the digital playing field is being leveled. Online debt negotiation may become a greater differentiator between smaller and larger agencies, if the projected plans of respondents hold true. Beyond online payments and virtual negotiation, agencies expressed some reluctance to adopt technologies and payment methods whose guidelines and regulations were ambiguous from a compliance standpoint. Overall, agency responses reflected a holistic approach to technology adoption as part of a broader business strategy focused on greater efficiency and reduced costs. The fact that agencies once again prioritized integration, PCI compliance and customer service over per-transaction pricing when selecting a payment solution suggests that the industry takes a long view on their technology return on investment. Collection Agency Operations and Technology Survey Page 22

23 ABOUT BILLINGTREE BillingTree s mission has centered around assisting accounts receivable management companies with growing their businesses by delivering cost-effective, compliant payment solutions that increase and accelerate collections. Committed to and serving the accounts receivable industry for over a decade, BillingTree is the industry leader in the breadth of integrations with core collection platform systems and payment technologies, and in payment compliance. To learn more about how BillingTree can aid the growth of your organization, please visit us at: Collection Agency Operations and Technology Survey Page 23

24 APPENDIX- COLLECTION AGENCY OPERATIONS AND TECHNOLOGY SURVEY 2013 TECHNOLOGY UTILIZATION RESULTS The following graphs illustrate technology adoption trends based on prior year results from BillingTree s 2013 Collection Agency Operations and Technology Utilization Survey. The 2013 report was based on a survey of nearly 200 U.S. accounts receivable management companies collected over a two-week period. These results are provided here to add further depth to the insights presented in the 2014 Collection Agency Operations and Technology Utilization Survey, where we witnessed greater adoption of online payment portals among smaller agencies and plans for greater adoption of virtual negotiation. Technology Utilization, 1-9 Seats Collection Agency Operations and Technology Survey Page 24

25 Technology Utilization, Seats Technology Utilization, Seats Collection Agency Operations and Technology Survey Page 25

26 Technology Utilization, 100+ Seats Collection Agency Operations and Technology Survey Page 26