Card Issuers Can Achieve Big Savings by Turning to Collection Firms
Wallace, Douglas W., de Mayo, Richard T., American Banker
In its search for cost reductions, the banking industry has turned to collections of delinquent accounts.
The focus is logical, but it wasn't always so.
When credit card providers were creating lots of wealth, as many of today's giants did in the 1980's, they could ladle out generous pay and benefits to collectors. But since the credit card market has become saturated, banks have been pressured into reducing interest rates, paying cash equivalents as incentives to customers, and, in general, running a tighter ship.
Looking outward into the marketplace for solutions, big credit card companies have whittled away collection department staffs, replacing them with outside firms specializing in specific tasks.
As banking moves away from vertical integration, the industry is developing learner, more flexible shops that outsource many functions and add temporary employees as needed. It all adds up to a profound change in the way the credit card industry collects from delinquent borrowers.
In essence, collections has evolved into a product of the marketplace rather than a core service that banks need to own. Outside collection firms typically charge less for servicing delinquent portfolios than the average per-account cost of a bank's internal collection department.
Credit card issuers estimate that their monthly per-account cost of collecting delinquent accounts aged five months or more ranges from $11 to $16, depending on the bank's size and efficiency. Compare this to outside providers, whose cost to the bank, measured by the same volume, ranges from $7 to $12 per delinquent account.
Fertile Climate for Change
The move toward leanness and flexibility, common to many U. …