Into the Black Hole

Something is happening in the world of retail, something big: our mobile phones are taking it over. And it’s not just that we are using them to pay for things — in all kinds of different ways — no, the biggest transformation that is taking place is in our access to information. Our phones are letting us compare prices, read reviews, get feedback from friends and family, find discounts and coupons and more, even as we are looking at and touching the gadget we are interested in buying.

It is a revolution, yes, and it is progressing at an astonishing speed. The sheer scale of the shift is breathtaking. Just in Kenya, for example, no fewer than 68 percent of people regularly send or receive payments on their phones — up from zero just a few years before. Or take China (in which mobile phone ownership is higher than it is in the U.S.), where mobile shopping grew by 165 percent in 2013. How is such a massive shift even possible? And where are we heading? Are we ready for it? Talk about a brave new world…

At UniBul, blogging is at the core of our marketing strategy; in fact, blogging is our marketing strategy. Nothing else we’ve ever tried over the years has enabled us to reach out to as many potential clients, even as we keep in touch with existing ones, and to do so as consistently as our blog allows us to do. It is hard, time-consuming work, to be sure, but the pay-off is well worth the investment. We no longer spend much time on our social media presence, beyond making sure our latest blog posts are shared with our Twitter, Facebook, Google Plus and Pinterest followers and with the members of our very own, incredibly active and fast-growing LinkedIn group. Yes, we do reply to messages we receive on these platforms, but, with the exception of LinkedIn, that is about as active as we get there.

Much as I enjoy blogging, and it is true that over time creating new content to share with our readers has become fun, I do it for one reason and one reason only: growing UniBul’s client base and, by extension, our revenue. I would probably be writing articles about credit card processing, mobile payments and high-risk merchant accounts even if blogging wasn’t such a big factor in UniBul’s business development process, but I doubt that I’d be doing it nearly as consistently; in fact, I know I wouldn’t. And, boy, am I glad that I’m forced to do it! But how exactly is blogging helping us to grow our revenue? Well, here is what I’ve learned so far...

In its third annual Consumers and Mobile Financial Services survey, the Federal Reserve takes another close look into the payment choices made by America’s unbanked and underbanked consumers. And just as they did in the two previous studies, the researchers find that, more often than not, not being part of the traditional financial system is much more a matter of personal choice and lack of financial education, than it is the result of being shut out of it. For some reason or other, a substantial majority of unbanked and underbanked Americans just don’t want to have anything to do with mainstream bank services and are perfectly willing to substitute them with payday loans.

While it is distressing to see just how poorly motivated choices unbanked and underbanked consumers are making, the good news for them is that the quality of at least some of the alternatives has gotten much better in recent years and continues to improve. I’m talking, of course, about the excellent prepaid cards that have been launched over the past couple of years, which were designed specifically for the unbanked (although some of them are perfect substitutes for, and offer better value than, many checking accounts).

First Chase launched its Liquid prepaid card two years ago, which offered everything a checking account offered, with the exception of paper checks, for only $4.95 a month. Then American Express and Wal-Mart upped the ante with Bluebird, which offered everything Liquid did, but at no monthly fee. It seems to me that the availability of such products is blurring the distinction between unbanked and banked consumers. But let’s take a look at the report’s findings...

More than 5.5 years after the collapse of Lehman Brothers crippled the financial infrastructure of the Western World, the aftershocks of the catastrophe are still being felt. Still, just how is it possible that our collective credit card debt is much, much lower than its level at the eve of the meltdown and has remained just about flat for about four years now? After all, the recession is long gone and the recovery, such as it is, has pushed us onward. Not to mention that the population has just kept growing. Well, here we have more of the same in February...

That is the question tackled by three researchers in a new paper for the Federal Reserve Bank of Philadelphia. On the face of it, third-party debt collection should have no place in our financial system. “Informational, legal, and other factors”, the researchers note, “suggest that original creditors should have an advantage in collecting debts owed to them”. Not to mention that, when doing the job themselves, the original creditors keep all they can recover, whereas when relying on others, they only get back about 80 percent of the collected debt, on average. Yet, third-party debt collectors not only exist, but they thrive, employing more than 140,000 Americans and recovering more than $50 billion each year. How can that be?

Well, the researchers identify one major factor, which they believe is giving third parties a sizable advantage and is the reason why original creditors are hiring them. It all comes down to the collection methods employed by the two parties. The original creditors, the paper argues, convincingly, tend to use softer debt collection methods, because they care about their reputation. Lenders don’t want to antagonize debtors who may, in due time, become profitable customers once again, nor do they want to create a bad name for themselves and scare away potential new customers. Oh, and they certainly don’t want to attract regulatory attention.

Third-party collectors, for their part, exist solely for the purpose of recovering debt, which means that they don’t have to worry about maintaining customer relationships. After all, debt collectors’ customers don’t choose to do business with them — they simply fall into their laps. The customer whose happiness a debt collector really cares about is the lender who hired her. All that being the case, we can understand why a third-party agency would be less lenient with debtors than the original creditor could afford to be.

But the paper’s main point is that third parties do bring efficiency to the debt recovery process, which is why lenders rely so heavily on them and is also why we have developed a specialized payment processing solution for them. The paper also lends support to another recent Philadelphia Fed paper, which found a direct negative correlation between the level of strictness of debt collection regulation and the availability of consumer credit. But let’s take a look at the new paper...