India is becoming a new hub for a highly competitive — and sensitive — outsourcing field: debt collection. And industry executives say low-cost Indian operations could influence how the $16 billion-a-year collections business works in the U.S.
Already, units of General Electric Co., Citigroup Inc., HSBC Holdings PLC and American Express Co. are using their India-based staff to pursue U.S. credit-card debts and mortgage payments by phoning delinquent debtors or tracing their whereabouts. Dozens of smaller Indian companies have begun offering third-party debt-collection services to U.S. and European banks and other companies.
Indian debt collectors also are opening their own offices or buying companies in North America to drum up more business. In October, for example, ICICI OneSource Ltd. of Bombay bought a large U.S. debt-collection company, Account Solutions Group LLC of Amherst, New York, enabling ICICI to combine its low-cost Indian work force with collection agents on the ground in the U.S.
Indian outsourcing executives say their operations, which have lower salary and technology expenses than their American rivals, can significantly reduce debt-recovery costs and make it worthwhile for U.S. companies to go after even the smallest of debts. The Indian companies’ 24-hour service also can improve recovery times, these executives say.
“Our cost of collection is 40% less than operators in the U.S.,” says Jerry Rao, chief executive of MphasiS BFL, which has hundreds of debt-collection agents in the Indian cities of Bangalore and Pune. “We can collect debts [U.S.] firms didn’t expect to before.”
Outsourcing companies in countries such as the Philippines and Mexico also are venturing into the debt-collection business, but India boasts the largest and fastest-growing operations outside the U.S.
ICICI OneSource’s purchase of ASG is the most ambitious move by an Indian company to enter the U.S. collections market. ICICI has employed around 50 full-time collection agents in Bombay since June to handle “early stage” collections — which involve pursuing debts outstanding for 30 to 60 days — for foreign clients. But the company felt it needed to offer a broader range of services to U.S. companies to truly compete in North America.
The ASG purchase gives ICICI a U.S. base to pursue so-called later-stage debts, which have already been written off by lenders, says Ananda Mukerji, ICICI OneSource’s chief executive. The merged company combines 600 Indian and U.S. agents and pursues both early stage and long-outstanding debts, where company agents are often forced to work out new payment plans with debtors, he says. If no agreement can be reached, the collection agency transfers the debts back to the original creditors, who often take legal action.
“Financial-services and telecom companies all need collectors,” Mr. Mukerji says. “We can now coordinate with ASG to offer these services.”
GE, in particular, has long experience using India as a base for debt collection, having hired agents for its GE Capital outsourcing unit there in the late 1990s. But this month, the Fairfield, Connecticut, company sold the subsidiary, GE Capital International Services, for $500 million to two U.S. venture-capital firms: General Atlantic Partners LLC and Oak Hill Capital Partners LLC. Executives at the former GE unit — now called Gecis — say they intend to rapidly expand its collections business to cater to other U.S., European and Asian companies. They say they will target collections for everything from medical charges to overdue gas-station bills for clients around the world.
“The range of industries that could be tapped is just massive,” says Pramod Bhasin, Gecis’s CEO. Gecis has 2,000 debt-collection agents working in New Delhi and Mexico.
Indian and other foreign debt-collection companies must comply with strict regulations on operations in the U.S. market. Some states forbid agents from calling debtors at work. Others have outlawed agents from seeking repayment from debtors’ spouses. Some states even have rules governing the time of day agents can call.
“It’s easy to screw up in this industry, and your client could potentially get sued as a result,” says Pavan Bagai of Exlservice Inc., a New York firm that uses India as a base to collect debts for a number of U.S. banks and insurance companies.
Growing U.S. political opposition to outsourcing also poses a threat to the growth of the Indian collections business, industry analysts say. State and federal legislatures in the U.S. are evaluating hundreds of bills that seek to curb the processing of sensitive information overseas. And consumer-advocacy groups are voicing concerns that foreign debt collectors already may be violating existing laws, including the Fair Credit Reporting Act, which is designed to promote accuracy in registering debts and to ensure the privacy of the information used in consumer reports.
“I am concerned about these companies getting into the credit-reporting agency pipeline because I don’t see how they can be held to account under U.S. law,” says Linda Sherry, editorial director for Consumer Action, a San Francisco advocacy group.
To meet such challenges, some India-based companies are providing extensive training to their agents. In addition to learning U.S. law, they are being schooled on the finer points of debt collecting. Included in Exlservice’s five-week courses, Mr. Bagai says, are lessons on how to open calls, how to exert pressure on uncooperative debtors and how to negotiate with divorced people and debtors facing financial hardships.
“A lot of the work is just trying to help people work out their financial problems,” he says.
India also is using its software skills to build computer applications that can help companies operate more efficiently, executives say. Many companies have developed software that directs dialing machines to channel phone calls to agents at a time when they are most likely to reach debtors at home.
Some India-based companies are considering going even deeper into the debt-collection business. While most debt collectors are paid for their services on an hourly basis, or receive a percentage of debts recovered, some are thinking of buying overdue debts from credit-card companies, banks and other financial institutions and collecting them for themselves — as many more-established companies do.
Editor’s Note: Bethesda, MD-based advisory firm, Kaulkin Ginsberg Company initiated the transaction between ICICI OneSource and Account Solutions Group and served as an advisor to the shareholders of ASG.
