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Michael Lamm

With the volume drought in the credit card sector in full swing, a common theme among credit card focused debt collection agencies is the concept of diversifying into other debt classes, such as auto or student loans.

The thought is that having “all of your eggs in one basket” is a bad thing. But the challenge for most agency owners who are grappling with this decision is how long it will take to actually execute.

For collection agencies focused on the credit card sector, in most cases, it took them a couple of years or more to obtain the business from one of the top five credit card issuers, and those years included many hurdles: the endless phone calls/meetings, dealing with attrition within the recovery department, endless paperwork, meeting data and physical security requirements, obtaining SAS70 or PCI certification, waiting for volume to finally be placed, working their way to better volume that is more collectible, etc. Those that have done it know exactly what I am talking about.

When a collection agency finally lands a big client, the hope is that it is going to be profitable in 6-9 months and this client will act as the next reference to obtain the next big issuer logo. Once you have obtained them as a client and have gained all of this experience preparing to service them, now how do you then leverage it into another asset class?

Building your brand and establishing yourself as a player in a completely new asset class requires an action plan and a capital commitment on the agency owners’ part. With a different work flow and collection techniques, a whole new set of decision makers to build relationships with, and many other variables, any move will take time.

Diversification Options

Agencies who are being impacted by the volume declines in the credit card sector are considering the following options:

  1. Leverage the existing platform, relationships and prior collection experience into a complementary vertical such as auto or student loans.
  2. Focus on going after business from well-capitalized debt buyers that are buying volume your agency has experience servicing.
  3. Hire a sales person who has a network of contacts in another vertical.
  4. Purchase debt either on a forward flow or one-off basis from its existing credit card clients to tie them into a relationship.
  5. Merge with another agency to become a larger and more scalable player in the eyes of the credit card clients.
  6. Make a strategic acquisition to enter a new vertical market.

After you’ve made the move, the really tricky part starts: successfully collecting on a new debt type. Consumers treat their credit cards much differently than their cell phone bills. All of a newly diversified collection agency’s internal processes will need to be reworked to accommodate a different type of debtor. This will require new investments in training, and even hardware and software.  But if it were easy, everyone would do it, right?

Michael D. Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly from Kaulkin Ginsberg’s Philadelphia office at 240-499-3808 or by email. You can also read his blogs on insideARM.com.


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