Sales of non-performing loans are strong, but to profit from the debt markets, firms need to improve their collection technology
The value of non-performing loans (NPL) might have fallen considerably over the last few years with a drop of some 50 per cent between June 2015 and June this year, according to European Banking Authority data, but European NPL sales have been strong. More than €205 billion worth of transactions were completed in 2018 alone and, as of January 2019, there are another €45 billion of deals in the pipeline.
Pressure by regulators on European banks to reduce the amount of toxic debt on their balance sheets left over from earlier downturns have driven this buoyant market in NPLs. The NPL market has attracted institutional investors such as US-based private equity and asset management companies.
The credit and collections sector is being revolutionised by Fintech companies as technology changes how the market operates. Alongside this, a growing number of smaller, buy-side firms are eyeing new opportunities, focusing on more modest value, niche deals, despite macro-economic uncertainty.
“A common anxiety that all our clients around Europe share is that things go very complicated pretty fast,” says Spyros Retzekas, chief operating officer of QUALCO, a leading provider of debt management software solutions and services. “When it comes to technology, having multiple systems across multiple geographies brings huge operational complexity while connecting actions to results becomes almost impossible. That’s why we work on a holistic approach, investing heavily in AI and automation .”
By understanding and improving the adoption of collections technology, he argues, all levels of a business – from the collections floor to the C-suite – can benefit. Working with banks and leading credit management firms across Europe, QUALCO has identified a common need for simplicity, operational efficiency, and a seamless customer experience.
“Complexity is the number one challenge for our clients” says Mr Retzekas. “This is even more significant for large organisations that run multi-country operations. We frequently find clients who have accumulated of several technology solutions, often custom-built, where any kind of adaption requires substantial investment. Operations can vary from country to country and can be influenced by factors such as local industry practices, local regulations and system capabilities.”
A growing number of firms are using QUALCO technology because it’s flexible and easy to configure to meet each country’s debt landscapes and regulatory requirements.
“Operational efficiency doesn’t flow from addressing just one aspect of the business process” says Mr Retzekas. “Gathering quality data and applying analytics to each aspect is important, but it’s only when you harness data across all steps and processes that you see the best possible outcomes in operational efficiency. Our platforms help our clients orchestrate in an automated way their planning and collection process, their restructuring and recovery procedures and the management of collateral and assets, plus everything that has to do with operational, management and regulatory reporting .”
Clients appreciate that QUALCO’s experience in all aspects of debt management – from NPL to debt collection and recovery – means that it can offer a holistic approach and the simplicity of a single integrated platform.
The consumer credit market is evolving with the growth of online transactions and digital banking. Meanwhile, competition is increasing from both existing banks and new players in the sector. Participants in this exciting, fast growing market need to be clear about the impact of these changes on their business models and how they intend to remain relevant and viable, according to Mr Retzekas.
Technological innovation will fundamentally alter the way customers can take control of their finances including within the collections process . Creditors across the EU are facing pressure to improve the experience of consumers on the debt collection journey. “While regulation has pushed standards of compliance higher, businesses themselves are seeking to compete on this level, offering lenders the security of excellent service to their customers, reducing the regulatory risk and enhancing reputation and collections success,” he says. “Businesses are responding to customers’ growing desire for digital transactions and services. Self-service systems for both clients and consumers will be a focus in 2020 since more and more businesses are offering these capabilities.”
Collections practices have changed significantly in the past decade, with increasing emphasis on the fair treatment of consumers and a determination by regulators to drive up standards. This trend is set to continue and to develop in emerging markets.
Financial technology can certainly be used to enforce regulations concerning the treatment of vulnerable customers, to develop financial solutions better suited to their needs, and to provide automated monitoring of compliance , QUALCO finds. Mr Retzekas points out that technology providers must ensure that the correct data is being captured to create an accurate view of the customer – but without violating privacy constraints.
“We always follow expert guidelines in our approach to serious issues such as mental health,” he says. “We actively incorporate TCF guidelines and recommendations in the way we design our products, and we support initiatives like CALM in the UK and similar ones in a number of European markets.”
He adds: “New technology offers firms the opportunity to benefit from the buoyant NPL market and satisfy demand for a better debt collection journey as well as ensuring that they comply with a growing raft of regulations. It’s essential that they find the right technology provider and take action now.”
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