All the elements are in place for an Australian debt collectors’ picnic in 2022-23. In 2020, nearly a third of Australians were late paying a bill and several large providers wrote off more than $150m in debts. The percentage of late payers is set to explode.
Not only will there be a sharp rise in mortgage payments from those on flexible rate mortgages but late in 2020 and in 2021 a large number of home buyers took out low fixed rate mortgages and now have finances that are totally unprepared for the loan payment levels that are about to hit them. Many banks became lax in their credit standards given the abundance of work, low interest rates and the avalanches of JobKeeper money.
Skyrocketing mortgage payments come just as power and gas bills are exploding further increasing overall cost of living rises boosted by higher food prices. In most cases these increased outlays have not been matched by wage increases leaving large numbers of Australians very short of cash. They usually pay their mortgage first which leaves utilities scrambling to get a slice of what is left over.
In this context I received a call over the weekend from none other than the 1983 America’s Cup hero John Bertrand who follows my comments and is still sailing. As I will explain below, Bertrand wanted me to alert readers to a new service called HelpPay that has the potential to facilitate assistance for Australians under debt pressure.
Meanwhile, not only will the scramble by service and goods providers to get their debts paid have few precedents, but the collectors will have to compete against the Australian Taxation Office which is trying to extract $34bn from people most of whom now have their backs to the wall.
And a newcomer to the race to harvest cash from Australians who have fallen behind in debt payments are those assisting some “afterpay” scheme operators recover amounts owing.
The great advantage all the “afterpay system” is that relatively small amounts of money are involved. In the past this has enabled high collection rates although the official figures coming from some of the operators are obscured by the fact that the amount of money in their systems is exploding and the bad debts and the problem loans relate to months ago when the total amount outstanding was much less. Accordingly, percentage problems in some operators maybe higher than is obvious from a cursory glance.
In good times small amounts of money can be collected relatively easily, but when there are community wide debt collection blockages the small amounts do not justify using expensive debt collection methods. In this new environment an escalation in the percentage of problem advances is likely.
But just as the “afterpay” industry developed innovative marketing so in debt collection some are applying innovation to collecting small amounts of money ahead of the utilities and others. The technique is to engineer a regular automated phone call requesting the money. It can be very powerful.
Another technique that is in growth phase is arranging “pay advances” where companies lend and are repaid by later wage payments. The money is used put a service provider to the head of the unfortunate person’s money queue.
On the other side, a large portion of the population is cashed up and often their incomes have been rising. But they have children, grand children parents and other relatives plus friends whom they are watching struggle to make ends meet. Almost embarrassed by the wealth difference, they are looking for ways to help. Bertrand says HelpPay was born out of discussions with people found that paying a loved one’s bill after they had lost their job was much harder than it needed to be.
Simply giving the strugglers cash doesn’t always work because it may be spent unwisely or used to satisfy the creditor that is pushing hardest (such as those who phone regularly) rather than an essential service.
Under the HelpPay system, those who wish to help can pay their money directly to the power, gas or any other specific service or product provider that can accept money via BPAY. The HelpPay system transfers money on a bill-by-bill basis and the helper can pay all of a designated bill or part of it.
HelpPay is the brainchild of a series of technology orientated entrepreneurs including Adam Barty, Andrew Ellett, and Rowan Wilde. Wilde spent last six years as head of digital for Red Energy.
Some utilities are now promoting the HelpPay service directly to those that are in danger of falling behind. Most utility companies and other major service providers usually try and get an overdue customer to sign up to an instalment plan. This is a lot better than sending the debt to the debt collectors who charge very large commissions and can be pretty ruthless in their approach – which can sometimes see the methods highlighted in the media. The trouble with the instalment system is that the bills like power and gas just keep coming and the person often never gets ahead.
Be prepared for intense competition in debt collection over the next 12 months and beyond.
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