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Mortgages Fallout Spreading Into Wider Economy
By James Comtois
Fallout from the mortgage sector is spilling over into the broader economy, impacting companies across industries and their ability to collect payments, according to the results of a recent survey by Web-based financial services provider Online Resources Corp.
The survey of more than 1,000 households finds that Americans are increasingly being forced to prioritize among their bills by creating a "delinquency budget" to determine which bills get paid. While the mortgage bill tends to be the one that households are most likely to pay, businesses across other industries are facing a decreasing share of that delinquency budget.
According to the survey, one out of four households report being delinquent on at least one bill, by 30 days or more. Also, if forced to choose between which bills to pay, 98% of households would likely pay their mortgage first, while credit card, phone, health care, utility and loan payments are among the groups of bills that are least likely to be paid.
Online Resources also surveyed a cross-section of clients from its more than 2,000 strong biller end-point network of banks, credit unions, utilities, health care companies, card issuers, receivables management and mortgage companies.
A majority of the respondents, across all industries with annual revenues ranging from less than $1 million to more than $20 billion, reported feeling a negative impact from the consumer credit crunch already.
Only 2% expect it to be easier to collect payments in 2008, and 84% expect to spend more on collections in 2008.
A key finding of both surveys is that billers are out of sync with how consumers would prefer to resolve their delinquencies. The majority of consumers prefer the Web channel for making delinquent payments, due to its convenient and non-confrontational nature.
However, only 8% of billers offer online collections services that go beyond accepting payments that would allow consumers to resolve their delinquency.
Prior Online Resources studies have shown that the Web channel is highly effective in increasing collections and in engaging otherwise unreachable delinquent account holders. Production results from a top three U.S. card issuer's use of the Web channel delivered annual savings of over $3 million for each $50 million of delinquent debt.
In addition, a significant number of late stage delinquent account holders that were previously unreachable by phone accessed the collections website and made payments on their accounts.
"The Web channel is playing an increasingly important role in consumers' financial lives and it is natural that they would gravitate to the web when they are late on their bill payments, to conveniently and privately resolve what might be an otherwise embarrassing situation," said Edward Woods, senior analyst for Celent Group LLC.
"As consumers' payment woes spread further outside the subprime sector, it will be increasingly important for billers to look at consumers' proven behavior patterns around use of the Internet for bill payments and delinquency resolution," he added.
"Today's challenging credit environment could pose a serious risk to companies in all recurring bill industries and their ability to carve out a priority spot in consumers' budgets," said Matthew P. Lawlor, CEO of Online Resources. "Billers who provide consumers with more options to resolve their delinquencies will have a distinct advantage in competing to win a priority share of the delinquency budget and also retain valuable consumer relationships."
More information about the results of these surveys are available in a report titled "Payment Delinquencies Spanning All Industries: A Survey of U.S. Consumers and the Companies They Pay," which is available at http://www.orcc.com/news.
This report is the third in a series published by Online Resources about the developments in consumer debt and collection technology.
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