Westpac Banking Corp’s venture capital fund has invested in the debt collection platform InDebted in a deal that shows banks, telcos and utilities will seek to collect more bad debts by deploying technology across the archaic industry. Reinventure Group has backed the $1 million seed fundraising round by InDebted, its 15th investment since the fund was established in early 2014. InDebted currently has three staff and plans to increase this to a dozen over the next 12 months. The Sydney-based start-up is already making revenue from its more than 1000 customers, mostly small businesses and some fintech lenders including SpotCap, whose managing director in Australia, Lachlan Heussler, is also an angel investor in the round.InDebted has plans to expand its platform to service banks and other companies with large numbers of debtors such as energy utilities or telecommunications firms. It believes its technology can help them reduce the size of internal collections units while developing a personalised approach to collections, making it more effective. InDebted will compete against ASX-listed incumbent players Credit Corp and Collection House, which between them have a bit less than 20 per cent market share, according to IBIS, which reckons the Australian debt recovery industry earns $2 billion in annual revenue. Dun & Bradstreet, acquired two years ago by Archer Capital, is also in the space.

Yet the industry is highly fragmented, and the processes for collecting debts at many players are often paper-based and lack data analytics to tailor and improve approaches. As a result, it becomes uneconomic to chase many small debts; it is estimated around $3 billion of small bad debts are written off by SMEs each year.

“There is a way to attack that,” says Josh Foreman, InDebted’s 28-year-old founder.Some of the big debt collection houses have minimum amounts for chasing of $1000. But the smallest debt that InDebted has collected has been $16; Mr Foreman said this was done profitably.The websites of the incumbents are typically cumbersome and don’t provide portals for materials to be submitted online. Collection methods involve cold calling from vast call centres, snail mail where the tone is often legalistic and aggressive, or SMS which asks people to call a 1300 number to progress the matter. This leads to many ducking and weaving to avoid payment – escalating collection costs.

In contrast, InDebted has developed application programming interfaces (APIs) to link to customer account systems and allow debts to be easily submitted. Sophisticated ‘skiptracing’ techniques are used to locate customers abroad, various social media and messaging platforms are used, while flexible payments options are offered. Mr Foreman says customers are treated properly, which is appealing to the alternative finance sector, where ‘UX’ (user experience) is so critical. This will also interest banks, given putting the customer’s interests first has become a strategic priority given the political climate and focus on improving culture.

Reinventure general partner Kara Frederick said: “Debt collection has been relatively untouched by technology, much of it is manual and that, frankly, is a dumb approach. It is an inefficient industry; there is a high cost to getting paid. This means billions of dollars [globally] are left never being chased. Instead of using a baseball ball, InDebted uses a personalised, customer-centric approach. How you interface with a debtor has a meaningful impact on whether you get paid. Traditional collection houses often don’t care, or don’t have the technology to do it.”Unlike most of its competitors, the only fee InDebted charges is its contingency fee, which averages 20 per cent of the amount collected. There are no upfront fees, and no skiptracing fees. If a dispute escalates, InDebted is also able to provide the client with detailed data on when the debtor saw the communication. In the future, it plans to run machine learning algorithms over its systems to work out what the optimal times to contact debtors. “We will have a profound amount of data that we have captured, which we can use to collect more debts at less cost. Psychology behavioural analytics will play a big role in the business as we grow,” Mr Foreman says.

The big four banks each have around 1000 staff in internal debt collection departments and in addition use dozens of external providers to assist with chasing bad debts. Mr Foreman said InDebted has also built a compliance engine that can manage training and qualify staff faster. Part of the seed funding will be used by InDebted to bring on additional engineering talent to help the company more rapidly and integrate with larger companies and to scale internationally, including to the UK. In the US, a similar start-up is TrueAccord.

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