Lots of business, but little profit for call centres here

Adith Charlie

Mumbai, Dec. 5

‘A lot of business with little income’

This seems to be the common complaint among the captains of BPO firms that provide third party collections and debt recovery services for clients in the banking and financial services space.

In spite of bagging new contracts (for collections-related work), there is little by way of corresponding revenues for the collections unit of these back-office firms, as they are paid on a per-realisation basis, according to Mr Milan Sheth, Partner, Advisory Services, Ernst & Young. In other words, if a BPO company is able to manage collection of $250 from a bank’s customer, it keeps a percentage of that amount as its fee. (Indian BPO companies telephonically follow up with delinquent debtors overseas and also track their whereabouts. Some vendors also engage last mile collection agents overseas.)

However, in the US, a growing number of people are falling behind on their mortgage payments because of the credit crunch. Credit reporting agency TransUnion LLC found that 3.96 per cent of people holding a mortgage were at least 60 days behind in payments for the quarter ended September 30, compared with 2.56 per cent in third-quarter 2007. This has made collections difficult for Indian vendors.

Mr Ananda Mukerji, Managing Director & CEO, Firstsource Solutions, said in a recent conference call with analysts: “…collections business, we are seeing liquidation concerns on both sides and we have seen negative pressure on that aspect. We expect continued stress on liquidation rates and pressure on profitability and we are monitoring the situation closely and taking corrective action at the operating level and in terms of juggling the portfolio we work…”

Firstsource, which generates 10 per cent revenues from BFSI collections, expects the pressure on its collection business to continue for the next few quarters. A questionnaire sent to Aegis BPO, another back office firm which provides services in this space, remained unanswered at the time of going to press.

So how should companies work around this trend?

BPO firms should try to ensure that billing is not exclusively modelled on a per-realisation basis, according to Mr Vineet Mittal, CEO, Stream BPO. A mix of pay per realisation and fixed billing rate (on an hourly basis) would be ideal.

Firstsource is being cautious on the kind of collections work that it is undertaking.

“…there is a lot of paper on offer out there, we are making sure that we pick up paper on which we can make the kind of margins we want to make in this business at this point in time, but there is a trade-off to some extent between adding collectors and trying to add revenue and the impact on profits…., “Mr Mukerji said