Thursday, April 24, 2008

Outsourcing Debt Collection

Todays IHT is reporting on the proliferation of debt-collection outsourcing to India. Not the type of activity one would associate with outsourcing, but the irony of India's economy growing on the backs of American addiction to debt is just too much to pass up.


India's kinder, gentler debt collectors remind Americans to pay their bills

By Heather Timmons
Thursday, April 24, 2008

GURGAON, India: In a glass tower on the outskirts of New Delhi, dozens of young Indians are on the telephone, calling out-of-work, forgetful and debt-stricken Americans to ask for cash. "Are you sure that's all you can afford?" one operator in a row of cubicles inquires politely. "Well, how do you take care of your everyday expenses?" presses another.

Americans are used to receiving calls from India for insurance claims and credit card sales. But debt collection represents a growing business for outsourcing companies, especially as the U.S. economy slows and its consumers struggle to pay for their purchases. Debt collectors in India often cost about one-quarter the price of their American counterparts, and are often better at the job, debt collection company executives say.

"India will be the only place we grow this year," said J. Brandon Black, the chief executive of Encore Capital Group, a debt collection company based in San Diego. India is Encore's largest operating area, with about half the company's collection force of more than 300.

Companies like Encore buy bad loans from banks and credit card issuers for pennies on the dollar and pocket the cash they collect. The delinquent borrowers often owe at least a thousand dollars. So far just a tiny fraction, maybe 5 percent, of U.S. debt collection is done outside the country, industry executives estimate. But new business is in the pipeline. Financial services clients are saying, "We want you to collect my debt, to analyze it and change the way that we sell" the loans, said Tiger Tyagarajan, executive vice president at GenPact, the business processing company spun off from General Electric that has roots in India.

Telephone debt collection represents new, more aggressive territory for India. "This is really a sales job," Hughes said. "It is commission-intensive, and you're paid on your ability to collect." Like many sales teams, Encore's collectors in India gather for a daily pep talk before their shift. In one recent session, they were schooled on the intricacies of American tax policy.

Once the calls start flowing, the Encore office at Gurgaon resembles nothing less than the headquarters for an enthusiastic fund-raising telethon. Just minutes after collectors have put on their headsets, a supervisor yells out "Rajesh, for $35 a month for three months." All employees enthusiastically respond by clapping three times, and the name Rajesh is the first on the day's sales board.
Companies like Encore often schedule dozens of payments and make dozens of calls before a loan is paid off.

Mortgage loans, which involve complex state and national laws, are nearly always handled by collectors in the United States. But credit card, auto and other debt are prime candidates for collection overseas. Just over 4.5 percent of all bank credit card accounts were delinquent in the fourth quarter of 2007, according to the U.S. central bank, the Federal Reserve, up from 3.5 percent two years before. Businesses in the United States put $141 billion in delinquent consumer debt up for collection in 2005, according to a PricewaterhouseCoopers survey commissioned by an industry group, and debt collection agencies collected $51 billion that year. They kept nearly a quarter of that in profit.

Encore hires people with call center experience in India, and then trains them in unexpected skills like sympathy. Clients "get very abusive, very emotional, very sad," said Manu Rikhye, vice president at the Encore unit in Gurgaon. The collector's job is to "try to empathize with the consumer," he said, and try to figure out, if they are angry, why. "Maybe it's us, maybe it's someone else," he said. "You have to hear what they have to say."

Encore pays its collectors in India an average base salary of 17,000 rupees, or $425, a month, and they earn bonuses - sometimes more than $1,000 a month - for getting customers to pay. In contrast, collectors in the United States, make about $6,500 a month. Thanks to the income, a windfall in India, where the average monthly wage is $63, collectors are buying some of the status symbols that probably got their clients into trouble in the first place - new scooters, iPods, Swatch watches and exotic vacations.

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