PYMNTS.com asked industry expert and author of Paying with Plastic, David S. Evans to profile industry thought leaders and executives to find out what's next in the world of payments.

In this exclusive NEXTcast interview, Evans speaks with Vytas Kisielius, CEO of Collections Marketing Center. Debt collection is often met with many emotions which, through human interaction, can slow down the collection process . Vytas and his team have launched a platform that incorporates Interactive Voice Response (IVR) to revolutionize the traditional collection process and help lenders increase customer retention and more effectively collect payments.

As the U.S. economy regains it’s balance, the unemployment battle is still being fought. Lenders are going to have to become more creative and flexible to deal with customers who are unable to repay them. The CMC platform allows the collection process to become individualized to fit the needs of each customer. What was once a disjointed, disconnected process is now offered as a single dialogue, self-service method of collection.

To hear the interview, click here.

Interview with Vytas Kisielius, CEO | Collections Marketing Center

Evans: This is David Evans. I’m here today with Vytas Kisielius, who’s the CEO of the Collection Marketing Center. Vytas, what is the Collections Marketing Center and what problem in the payment system is it trying to solve?

Kisielius: Hi, David. The Collections Marketing Center, or CMC, is a software company. We have a platform that helps lenders do a more efficient and effective job in collecting payments from either delinquent debtors or in some cases written off accounts and in other cases pre-delinquent accounts.

Evans: And how did you get into the business? What’s your background?

Kisielius: I’ve been in the financial services space my entire career, starting with IBM a long time ago. And most recently in a couple of more emerging growth companies, the last of which was an interactive voice response company I co-founded, and as we got into the collections application and learned what we were trying to achieve by automating interaction, we found that one channel, IVR alone, just wasn’t as effective as becoming a fully knit-in part of the fabric of the collections operation.

And so I joined with a consulting firm that were a specialist in credit and risk policies called Bridgeforce and we founded this company, CMC, to solve that very problem, which is that when you have disjointed, disconnected communications that are happening sort of in their own silos, you lose both efficiency, because you’re spending too much in each of the individual silos you’re losing effectiveness because your message is diffused and in some cases contradictory, and in other cases just confusing to the debtor. And finally, with the way that the – both the economy is headed and just our environment in total, people are more and more comfortable interacting via the self-service, more automated channels and the collections industry, unfortunately, has been way behind in adopting that. So you find people still doing the smile and dial kind of tactic that’s less and less effective.

Evans: You wrote a paper recently with Julie Austin at TSYS. You guys talk about how the payments business really needs a full channel approach for collections. What’s the full channel approach and how is that different from what collection organizations are doing today?

Kisielius: The current state of the art is even with the largest banks who have invested in various technologies like e-mailing and text messaging and having Web-based collections, in addition to their auto dialers and their IVRs and their – and letters that they send – those communications are disjointed and therefore from the consumer’s point of view, it feels like the dialogue goes in fits and starts. And when I say the dialogue, I don’t just mean the communications channels. I mean the content. What offers are they making me? What happens when I speak with an agent? Because the agent’s never going to go away. They’re an integral part of the process. The problem is that when those communications are all done, offers and treatments that maybe are inconsistent or worse, appear to be inconsistent, to the debtor even when they’re not, then there is a breakage in the process. What we’ve done at CMC is knitted all those things together so that you can have a single dialogue with that debtor regardless of whether they’ve come to the Website and look at offers, then interact with the IVR to close out their program or speak with an agent. The benefit of this full channel, this full spectrum approach to the dialogue, is that from the debtor’s point of view – you must remember, the debtor’s always known the whole dialogue.

The debtor’s always known what you wrote them in the letter, what you said in your IVR message, what the agent said, and what they saw on the Website. So they’ve always been ahead of us in knowing the full state of the dialogue from their point of view. And so what we’ve done with this automation platform that we call FlexCollect is we give the lender a way to understand that full dialogue. That has two main benefits. One is the financial benefit and efficiency and effectiveness. But secondly, from the customer’s perspective, you are now treating them with a dialogue that makes sense. And that has an implication on your ability to retain customers down the road. A lot of today’s first-time delinquent customers are tomorrow’s great customer. You want to retain them, not push them away or make them regret doing business with you during this down time.

Evans: Could you remind us what IVR stands for?

Kisielius: Sorry. That’s interactive voice response. That’s when a computer calls and tries to have a dialogue with you that’s completely automated.

Evans: I see. And so I guess you would argue that this helps with customer retention?

Kisielius: Well, sure. If you’re taking the old-fashioned approach and you’re trying to make sure you get a body on a body, which is a collector talking to the debtor, then you’re making many people uncomfortable because they feel guilty and they feel ashamed in many cases that they owe you the money. There are a lot of those debtors out there who would prefer to not talk to the agent but who still have every intention of curing their debt. So by giving the customer the option and giving the customer control, and by knowing the full state of the dialogue, you can actually come out within a collaborative outcome that doesn’t feel as bad to the customer and therefore makes it more likely that they’ll remember you as the person they want to deal with in the future.

Evans: The full channel approach that you’ve described sounds like a pretty radical change in the collections paradigm. Isn’t it going to be costly and take a long time to implement?

Kisielius: It isn’t with the platform that we’ve built, which plugs in as a managed solution to whatever collection system is already in place. The bigger change is sort of a philosophical paradigm shift where most collections platforms have been oriented toward putting all the power in the hand of the collector and trying to make sure that that collector’s talk off, in industry terms, is the right one. We’ve in fact created a platform that allows the strategist and the manager of collections to sort of set all the dials and run the show, where the collector is an integral and important part of the dialogue, but only one part, where the strategist can manage, for example, with David, who’s low risk and a medium-sized balance, I’m going to go with lower cost, more self-service channels in a higher percentage of my attempts than with Vytas, who’s higher balance and higher risk and I want to try that and if he doesn’t respond quickly, I’m going to move him into an agent conversation. Similarly with the offers that I make. David being low-risk, I might be willing to do things with David in a programmatic way that – or actually not be willing to make as many concessions because David’s low-risk and I think he will pay, whereas Vytas, being high-risk, I might have to go a little bit deeper to get a payment at all from Vytas. And the risk here is not that either of us will charge off, but in the percentages, we know that what will happen is that some people will charge off and I want to maximize my yield by having the right program for the right person. I want the programs very individualized based on risk, balance, and other factors.

Evans: How is CMC using this approach to help lenders today?

Kisielius: So in our platform itself, we have the decisioning capability and the rules capability that allows the customer to have an unprecedented both flexibility in the programs that they create and transparency to what’s happening across all of the different offers and the customer’s responses by channel. But the other part of it is that we get pretty actively engaged in working side by side with our clients. We have a lot of domain expertise in our team in collections. And we work with our customers to make sure that they can start with strategies they’re already deploying and be very comfortable, be quickly up and running with this managed service platform, which means they don’t need to put in software. They don’t need to put in any hardware to make this work. And we work side by side to make sure that they’re comfortable in their progression through simple strategies to more complex strategies like what do I do if someone comes to the Website and doesn’t make a payment but looks at an offer. Do I want to make them a new offer? Do I want to inform them about with an e-mail or a text or an interactive voice call, or do I want to put them in an escalation queue to agent. All those kinds of decisions are new to many organizations that haven’t been able to do full channel. But we work hand in hand with our clients on a sort of a consultative basis to make that transition.

Evans: Collections organizations are struggling to find ways to resolve pre-delinquent accounts. Is the full channel approach you’ve described applicable to that problem as well? And are there any additional nuances that you think lenders ought to be aware of?

Kisielius: Sure, very much so. The idea in pre-delinquent accounts, of course, is you’ve got a population that you deem to be at risk who aren’t yet delinquent. And so one problem is that the current collections systems in many cases aren’t even set up to be able to handle that account population. And with the FlexCollect platform, we are set up to manage those accounts that are in kind of that limbo between they’re not yet in collections but I’d like to treat them as if they were. Second consideration is when I do get in touch with that borrower, I want to find out some new information, some fresh information, that will tell me whether the concerns I had about their being at risk are well-founded or not. And I need to make a very clever set of calculi about whether I want to give this person some new offer or modify their loan in some way that means I’m going to be willing to take less payment as a trade off and possibly charging off entirely.

So I need a very good decision platform to take that fresh information and run it against my calculus of what’s the net present value of this loan under different scenarios to come out with what offers I want to make. And that all has to happen in real time because I’ve got the person on the phone or I’ve got the person on a Website giving me this fresh information.

And then the final aspect is once people agree that they’re going to modify a loan that they actually haven’t yet become delinquent on, the whole notion of pull-through, of getting those people to give you the information you need to make that loan modification is a huge deal, in that going to all the effort to make them an offer, have them accept it, and then have them not follow through, is a waste on everyone’s part. And in some of the mortgage loan modifications, we’re seeing very low pull-through rates because there isn’t a good programmatic way of reminding folks when they haven’t sent their W-2 or whatever documentation is required to go the next step. And again, our platform automates all of that workflow so that not only do we let you know who is where in the process, but you can build automated ways of trying to nudge people through it, whether that be electronic reminders or escalation cues or just messaging back to the lender, saying hey these people are in trouble, and maybe possibly going to fall out if we don’t do something for them right now.

Evans: We still have unemployment hovering around 10%. A lot of people have taken pay cuts and are hurting financially. I haven’t looked at the statistics recently, but I think if you take the unemployed and the discouraged workers and people that have taken a significant cut, it’s probably somewhere in the neighborhood of 20% or so of the workforce. How is the economy today affecting the collections business and how’s 2010 going to be for defaults and for collections?

Kisielius: Well, that last question’s one that all of the economists, who are much smarter than I, can give you their opinions. And they differ quite widely. But the reality is that –

Evans: You’re touching people all the time, so you, in a sense, have – you have almost better real world information than economists.

Kisielius: Well, exactly. And the economists look at things like what’s the default rate when that’s a summation of a number of different factors, like how many new loans have come on the books since the last couple of years we’ve already tightened credit practices. So the statistics can be a little bit misleading. But what our clients are telling us is that they don’t anticipate the – at least in the lending side for credit card loans, auto loans, mortgage and home equity loans – they don’t anticipate things getting much better in 2010 until the unemployment rate has peaked and started to go back down. So traditionally the industry lagged behind unemployment rates. So if you look at a graph of unemployment vs. default rates, default rates typically lag somewhere between three and six months because all of those people, when they immediately get a job, have a lot of debts and other things that they’re trying to deal with, so it doesn’t just fix itself. But long story short, we envision that lenders are going to have to be nimble and very flexible and creative in their thought process about how to deal with more and more customers that are having difficulty repaying. Even if the willingness is there, you’ve got to work with people that are willing but don’t have all the ability they had a year or two ago.

Evans: Sure, tough, tough times. Well, we really appreciate your time today. Is there anything else that you think we ought to know about CMC that I haven’t asked?

Kisielius: No, your questions have been very thorough. I’ve enjoyed meeting you and I look forward to speaking with you again.

Evans: That’s great. Really appreciate your time today. Have a great rest of the day and a great 2010. So thanks a lot again.

Kisielius: Thanks, David.

END OF RECORDING

Executive Bio: Vytas serves as Chief Executive Officer of the Collections Marketing Center (CMC), a pioneering adaptive collections services company that leverages the intersection of best technology and operational delivery to provide clients the ability to deploy completely synchronized collections offers, contacts, and treatments. The company’s managed services solution is helping a rapidly growing number of top lenders across credit card, real estate, student, and installment loan products to manage their charged off, delinquent, and pre-delinquent portfolio operations.

Vytas spent the first 10 years of his career with IBM in various sales and product development management roles; was President and COO of Health Information Technology, Inc.; was the SVP for Sky Alland Marketing, where he also served as CEO for The Data Group; and was VP/General Manager of Americas Operations for Frontec AMT. Most recently, Vytas co-founded Adeptra, Inc. in 2000 and was responsible for growing the automated messaging company in the US and the UK.

Vytas holds an AB in Economics from Princeton University and an MBA from the Harvard Business School. He has taught graduate courses in Marketing at Johns Hopkins, and is a regular presenter at industry conferences and seminars. He serves on the board of Nursing & Home Care, Inc. and lives in Wilton, CT.

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