Given how antiquated the collections software is at most banks, some companies that sell more modern systems say it is time for banks to spend less on online banking and more on their products.
Banks could collect more money earlier from delinquent and charged-off customers if they upgraded, these companies say. Creditors habitually ignore technological developments in the collections industry and are therefore missing opportunities to boost profits, they say.
Many banks have made an art out of stretching the lives of their legacy systems, according to Steven J. Martin, a business consulting manager for American Management Systems Inc. in Fairfax, Va., which released the latest version of its widely used collections software, CACS 8.0, this summer.
Plenty of banks use platforms that are 10 years old or older, Mr. Martin said in an interview Tuesday. "A collections manager is far more adept at making use of old technology" than, for example, an executive in an online banking division, he said. Older software still works but is much less efficient, he said, and in some cases is no longer supported by vendors.
A TowerGroup analyst said financial companies "do not focus their strongest resources" on collections.
"Most of your technology dollars are really spent either on setting up online operations or improving your servicing capabilities," said Christine Pratt, a senior analyst of consumer credit at the Needham, Mass., consulting firm. "This is really an area underserved both by attention and technology."
She spoke during a Sept. 10 webcast on collections technology. TowerGroup's agenda was to tout the benefits of CACS 8.0, which has a new interface and a post-collections system that tracks recovery of charged-off dollars. AMS is a TowerGroup client.
Asked why a platform unifying the collections and recovery processes had not been developed sooner, Mr. Martin said AMS gives the market what it wants, when it wants it. Banks tend to put collections improvement on the back burner unless delinquencies or chargeoffs start to spike, he said, and most are slow to upgrade systems that still work.
AMS is the dominant vendor in collections information technology. Its nearest rival, the U.K. company London Bridge Software Holdings PLC, has the leading share of the recovery IT market.
London Bridge says a unified platform is nothing new. A spokesman said it has been selling a product similar to CACS 8.0 for five years and has signed up several large banks.
Mr. Martin said many large companies have to deal with convoluted -- and therefore hard-to-replace -- systems. Acquisitions have meant inheriting a hodgepodge of applications, so big companies have "more of a spaghetti back-end" than smaller ones do. Migration to a single platform, though it would probably take months, could pay for itself within one year, Mr. Martin said.
According to AMS, an overhaul of an entire collections system -- strategies as well as technology -- could reduce the costs of the operation by around 20% on average, lift dollars collected by 5% or 10%, and accelerate payments by one to three days. Creditors could also trim 3% to 5% of their chargeoffs by better rehabilitation during the delinquency stage, the company says.
An annual survey conducted by the Consumer Bankers Association measures the effectiveness of its members' collections efforts by looking at how many delinquencies were saved from being charged off. According to its 2003 survey, for every $100 of consumer loans delinquent by at least 30 days, $4.70 was charged off. (For credit card loans only, that number was $13.70.) Ten of every 100 delinquent accounts were charged off.
Mr. Martin said any collections overhaul would first have to junk the long-used "age" criterion -- accounts being attended to according to how long they have been delinquent or charged off. …