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Thursday, April 24, 2008

The Technology of Debt Collection


I read a story in the New York Times business section today which I found somehow profoundly troubling. The story (free registration required) entitled
"Debt Collection Done From India Appeals to U.S. Agencies" which describes the growing use of technology-enabled collection firms based in India. The gist of the story is that U.S. bill collectors are now beginning to outsource debt collection because they can get the service in India for about a quarter of what it would cost in the states. Technology, sophisticated database query systems, web technology, and global communications systems, are making all of this possible.

So, we have an economy which uses sophisticated technology to market products to U.S. consumers, encouraging people to overspend, and then the same technology enables low-cost overseas operations to collect when the payments are late. Many U.S. companies use this type of technology to both outsource production of their products and for the collection of the payments and debts from customers, many of whom are over their heads. All of this is driven by the lower cost of labor outside the country that is enabled to work from such a distance by our highly innovative technology. I am not sure where the companies think Americans are getting their income to make all of these purchases but clearly many of the jobs people use to do (like production and bill collection) are now moving off-shore. Technology makes it all possible.

Don't get me wrong, I am a great supporter of technology and innovation and in the long run I think it does far more good than harm. The Times story seems to me, however, to be one of those that goes under the heading of "Unintended Consequences". At least to me, this reinforces the need for the U.S. to stay at the forefront of innovation in order to be able to pay the higher wages that are required to keep people afloat in this global economy. Otherwise technology enables companies to look for the lowest cost labor pool they can find, no matter where it exists.

Of course, Americans could better watch what they spend and not have to get a call from a debt collector (even an Indian debt collector). But somehow, I think that this would raise the concerns of the very companies who depend on these same consumers to buy products they might not be able to afford.

The Times story ends on this (ironic) note:

Encore pays its collectors in India an average base salary of 17,000 rupees ($425) a month, and they earn bonuses — sometimes more than $1,000 a month — for getting customers to pay. In contrast, collectors in the United States, make about $6,500 a month. Thanks to the income, a windfall in India, where the average monthly income is $63, collectors are amassing some of the status symbols that probably got their clients into trouble in the first place — new scooters, iPods, Swatch watches and exotic vacations.

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