His bags were packed, his house was sold and he had cash in the bank. Debt collections specialist Frans Basson had a ticket to the world and he was determined to enjoy the ride.
Then came a compelling business proposal: to launch SA's first black-empowered credit-collection agency. The concept was the brainchild of Erwin DaGama, once Basson's candidate attorney. The company was launched with the two partners - one black, one white - and four black call-centre staff.
That was five years ago.
Now Munnik Basson DaGama (MBD) is a global player in the debt-collection business.
MBD has turned debt collecting into a science with a powerful combination of innovative technology, psychology and processes.
It is SA's largest debt-collection agency, growing at 100% compounded year on year and collecting more than R1bn/year in bad debts. Its nearest competitor collects about R300m/year.
It was also the first SA company to capitalise on the growing trend of outsourcing debtors books to collection companies in India, Australia, the Philippines and to a lesser extent SA. Among its clients are American Express, BarclayCard and UK television company BSkyB.
A survey by US magazine Collections & Credit Risk says the number of new call centres offering collection services is expanding dramatically, particularly to India, which can offer cost reductions of around 40% to European or US collection companies. At the same time foreign credit grantors are increasingly outsourcing their entire receivables management function to offshore credit-collection agencies.
So far MBD has fared well against this foreign competition - it benchmarks itself on a weekly basis. SA's labour costs are slightly higher, but MBD collects an average of 15% more than the nearest offshore competitor. "We throw technology and process at the problem, they throw people," says Basson, who is CEO.
American Express's head of European charge collections, Jim Jasicki, says MBD can stand alongside the best UK collections operations. "At MBD they analyse their performance portfolio to the nth degree and continually seek improvement," he says. The European agencies that have traditionally handled much of Amex's business are not of the same standard, while the Indians, who do some work for Amex, do not handle its collections . "Indians are more accommodating," says Jasicki, "and better suited to handling service. We need someone more hard-nosed, more assertive in a collections environment."
MBD employs 1 200 people and has local clients like the big banks, Woolworths, Edgars and Ellerines as well as government agencies such as Johannesburg's City Power.
DaGama has moved on. "He didn't like the collections business and left to launch other empowerment companies," says Basson.
But the empowerment ethos lives on at MBD. Almost 80% of the company's staff are black - at all levels.
Breaking more kneecaps than the next guy is not the way MBD got ahead. Nor was it by threatening debt defaulters with legal action. Indeed, over 90% of the company's collections are received through amicable negotiations, against an industry standard of 26%.
As a result of its collections success some of its JSE Securities Exchange listed clients incorporate the annual forecasted MBD collection results into their formal annual financial accounting budgeting process.
The technology is based on a proprietary IT system called Cheetah. It was developed by Basson and is now sold to customers and competitors alike. Cheetah works using artificial intelligence to predict when people are likely to default on their debt. Agents are then prompted to contact them. This friendly "how are things" call results in payment 80% of the time.
Once people have defaulted, the system works through matters step by step. Part of this includes a behavioural scoring methodology, which is unique in debt-collection systems. It profiles delinquent payers and creates matching workflows and strategies for handling them.
Crucially, the profitability and feasibility of applying specific actions to a matter is monitored and managed throughout the process.
For instance, the system will predict the probability of repayment on a specific matter. Collectors adapt their interactions with the individual accordingly to increase the likelihood of repayment.
That's on the collection side. Cheetah also provides MBD with a human resources system, measuring performance and productivity in real time. At any point in the day, call centre agents and their supervisors can see how long an agent has worked, how many breaks they have had, how many calls they have made and their success rate against the cost to company. "We monitor all business processes and results in real time to react immediately to any changes," says Basson. "Cheetah gives us a digital dashboard' and uses colour to reveal the status of matters and results. It compares portfolio performance and where we deviate from targets and budget."
It will alert management by e-mail if any deviation becomes large enough for them to take immediate action.
But Basson cautions that the technology is just part of the solution. "Information technology, no matter how unique or efficient, is an enabler," he says.
What differentiates the company is its understanding of the psychology of debt and the detailed processes it has built around this.
It operates according to the principle of "debt collection with dignity". "People don't want to be in debt," explains Basson. "Many do not know how to get out of it and they will gladly settle if you assist them."
MBD trains its call-centre agents in listening, negotiation and probing skills to help people solve their financial woes.
Like most stories with great middles and ends, MBD's beginning was anything but easy. The company was small, but had a big vision: to build an equal-opportunity employer in an industry where black faces did not feature.
Basson does not regret his decision to remain in SA, but it hasn't been easy. "I started as CEO-cum-dishwasher; we slept at our desks; we became obsessed."
Why was it so tough? No-one was prepared to entrust their debtors books to black collectors, despite Basson's 15-odd years collecting for the same companies that were now turning him away.
The choice was simple - go big or go home. So they made a video. "We composed a song set to the tune of Adiemus adiemus' , adapting the chorus line to we will be the best or nothing'," recalls Basson.
In his neatly co-ordinated mauve corduroys and mauve shirt he does not immediately strike one as the epitome of creativity or innovation. Yet the amateur production was a hit. The SABC was the first to give the small team a break. Since then, videos and CDs have become a key marketing tool. Each year the company prepares a stage production featuring staff singing and dancing their own MBD rendition of popular hits. These days "It's raining work - hallelujah", set to the old Weather Girls classic "It's raining men", is a standard.
The SABC, meanwhile, has become a significant client, despite some performance hiccups in the beginning. Now the broadcaster outsources a large slice of its collections to MBD. "Our first job was to help the company turn around its licence renewals," says Basson. "On the strength of this we won more business."
Globally, MBD has been voted American Express's top performer for the past three months in a row. Though it handles just 10%-15% of Amex's UK business, it has attracted the attention of the top brass. "We will continue testing [MBD] to the end of the year," says Jasicki, "and there are very senior eyes watching."
He says there is a possibility that Amex's European business will relocate its debt-collection operation to SA. "SA can also offer other language skills, like German and French, that competitors in India cannot." If all goes well, Jasicki sees no reason why Amex Europe (using MBD) should not bid for Amex collections business globally. "This is just the tip of the iceberg," he says.
MBD has set its sights on the Australian and American markets, but before that the company will be heading off into the rest of Africa. Barclays Bank has extended its year-long relationship with MBD to include all of its debt recovery across Africa.
The commercial collection industry is large and growing. In SA, consumer debt levels hover around R650bn, a figure that is not out of line with countries like the UK. In SA, however, growth is expected as SA consumers battle more than their foreign counterparts to repay their debt.
Despite the growth, the industry is no picnic, battling increasing price competition and declining profit margins. The average profit margin for commercial collection agencies last year (from collection operations) was about 9%. In 1995 it was about 12%, a decline of 25%.
Competition is stiff and barriers to entry low. To clean up the industry and protect consumers against unscrupulous agents, the new Debt Collectors Act came into force last month. Advocate Jasper Noeth, head of SA's Debt Collectors Council, says 4 000 companies have registered as debt collectors. "Companies that continue to collect without this [licence] will be committing a criminal offence," he says.
Basson says the company will be relatively unaffected by the new act. It has duly registered MBD Finance and Credit Control Specialists with the council and will easily comply with the minimumtariffs prescribed by the act.
At current growth levels MBD should number 3 000 people within three years. Basson has hired a chief operating officer and plans to replace himself with a professional CEO.
The company has established an in-house think-tank to maintain standards and continue to innovate.
Innovation in technology, processes and systems may be MBD's recipe for success, but it does not guarantee popularity in an industry that has only recently learnt to communicate in a civilised fashion. Eugene Joubert, MD of competitor Snyman & Vennote, declines to comment and another member of the Association of Debt Receiving Agencies dismisses the company with "they are different" . . . One senses the knives are out for MBD.
As Basson knows only too well, negative experiences go with this terrain. The trick, he says, is to keep a step ahead of the knives.
