Debt has long been considered something of a dirty word, but financial services provider Credit Corp is shaking the industry up to make conversations about repayments a lot more positive. It is a long overdue shift that has helped ‘credit-impaired’ consumers get back on their feet and break the downward spiral that can result from financial stress.
The shift began shortly after the global financial crisis when calls for higher standards of conduct within the financial services industry led to greater regulation, Credit Corp CEO Thomas Beregi tells The CEO Magazine. “While Australia didn’t really experience some of the egregious practices that occurred elsewhere, particularly the US and the UK, we had a similar sort of regulatory response,” he recalls.
This started with the National Consumer Credit Protection Act in 2009 and culminated in a concept of “community expectations”, he says, which gathered momentum during the Banking Royal Commission. “Interestingly, Credit Corp was very well-placed to deal with this shift.”
This is because since its very start in 1992, the company has interacted with those more likely to be experiencing financial hardship than most. “We’re more likely to encounter people who might also be suffering from some kind of vulnerability,” Thomas shares. “So that’s always meant that our focus and our training has always been on being respectful and listening to our customers.”
For Credit Corp, the “celebrated outcome” in a conversation with its customers is the agreement of a “sustainable repayment plan” that works for them. “Maybe their income is not entirely stable or it’s not huge, but we can work out an amount that they can sustainably repay over a reasonable period of time,” Thomas says.
“That generally gives people confidence. A lot of people we interact with are, unsurprisingly, avoiding us and don’t necessarily want to hear from us. But we try to work with them so that they can feel good about the outcome.”
The company has put a lot of work into honing its approach, working with consumer financial counselling organisations and community services such as Kildonan Uniting Care, which has come into the organisation to listen to and fine-tune how it interacts with its customers.
“If you prioritise some short-term outcomes, such as maybe profits over principles, and don’t do the right thing for customers, eventually it’s going to come back to bite you.”
Of course, there are people whose situations are more extreme. “And we have to recognise that,” Thomas says. “But then there are other people who can make some repayments but don’t, and it’s a very bad outcome for us when that occurs, as we have to look at legal avenues among other things. To us, that’s a failure.”
Credit Corp’s determination to resolve matters before they get to this point means legal action is very rare. “It’s a fraction of a per cent of the customers we get in contact with that will result in any form of legal action, and we’re pleased that it is at such a low level,” he says.
This ability to turn what has traditionally been a very negative thing into a positive experience for its customers has really enabled Credit Corp to differentiate itself from other financial institutions. “That’s been recognised by a range of stakeholders – clients being the most important, the major banks, finance companies and telcos, which are some of the largest companies here in Australia,” he says. “I like to think that when they deal with us, they can feel we’ll not only protect their brands but also do our best to enhance their brands.”
Making its mark
By adapting to the change in expectations that has occurred in the past decade in Australia, Credit Corp has achieved an “absolutely impeccable” regulatory record, according to Thomas. “We’ve never been the subject of any type of regulatory action. We’ve never had an order made against us. We’ve never had to make an undertaking,” he stresses. “And that’s despite being the largest and longest-established operator in our industry.”
The company also has the lowest complaint rate in the industry with the Australian Financial Complaints Authority. “It’s roughly half that of our nearest competitors,” he says.
In a recent survey from Financial Counselling Australia, Credit Corp was rated the highest of any financial services provider in its response to consumer hardship. “That’s higher than any bank or finance company, any other creditor in Australia, so we’re very proud of that,” Thomas says.
To retain its strong position involves a “never-ending” process of self-improvement for Credit Corp, driven in part by its status as a listed company. “Being a listed company is a very, very long game with no finish line,” Thomas explains. “Every year, you’ve got to do better than the year before.”
While the company’s good intentions are deep-rooted, Thomas is thankful that doing the right thing also makes good business sense. With any dubious actions likely to catch up with one, especially in this digital age, he would prefer to rest easy at night. “If you prioritise some short-term outcomes, such as maybe profits over principles, and don’t do the right thing for customers, eventually it’s going to come back to bite you – you can’t escape it,” he warns. “I’ve been in the chair for 13 years, so if I have ever made a mistake, then I’m going to know about it.”
When it comes to growth, Credit Corp has always taken a “relatively steady” long-term approach. “From a compound annual growth rate perspective, it looks higher than 20%. I guess that sounds impressive, but it’s been relatively consistent over the period,” Thomas says.
When he first started as the company’s CFO in 2007, Credit Corp was simply engaged in the business of debt purchasing in Australia, using local staff. “While we could be very successful and there was a lot of room to grow just within Australia, I realised that this was quite a vulnerable position,” he recalls. As a result, the company ensured it had access to “flexible” resources in the Philippines and commenced buying debts in New Zealand, which Thomas describes as “obvious things to do”.
Perhaps less obvious, though, was the company’s move into consumer lending. “We were very good at dealing with people who were having trouble with credit and repaying their debt,” he explains. “When we looked into the market, we saw that the alternatives for them, once they got their debts under control, were very limited.”
The only option for those with poor credit at that time were payday loans. “Payday loans are not sustainable and, in our view, were just doing more harm than good. So there was room for us – we could see a way through, and we could see an opportunity for us to apply our expertise.”
The same was true when Credit Corp contemplated its entry into the US market. “There was a big developed market, and we had expertise that we thought might be applicable,” Thomas says. “There’s been a bit more work to do and a bit of test and learn, but these are all things we knew we could do that would help de-risk us and provide us with a pathway to grow well into the future.”
Thomas has achieved plenty in his current role, but rather than milestones or hefty profits, he is most proud of his people and their individual successes. “My impact on the things that happen here is somewhat limited and remote,” he says. “I’m a bit more like the general – well behind the front line, behind the ramparts, while the people are risking life and limb at the coalface.”
Thomas particularly enjoys watching people develop from frontline collection roles into empowering leaders. For example, the leaders of both the lending business and the US business started out in entry-level positions more than 10 years ago and have consistently proven themselves, moving up through the ranks.
“Now they’re interpreting objectives, they’re developing new ways of doing things, and they’re driving those businesses now,” he shares. “I get enormous pride when I see people like these individuals doing things and coming up with initiatives without my intervention or direction.
“That’s what creates a sustainable growth profile for the company – when you’ve got people who understand what their objectives are and how they contribute to the success of the company, and they’re able to keep driving towards these measurable outcomes.”
Staying on top
It can be tempting for a market-leading company to become complacent, which is why Thomas believes that an “element of paranoia” can help keep a business on its toes. “I spend a lot of my time speaking to people with the assumption that our competitors are actually better than us. They may not be in the same position, but a lot of what they’re doing could be better than us,” he says.
By constantly keeping an eye on what its competitors are doing, he hopes to avoid the “proverbial mouse trap” as he calls it. “If you don’t operate with that kind of paradigm, then you will wake up one day and wonder what happened. How did this enviable position that you had suddenly just evaporate?” he warns. “That’s why we have always been an innovating company.”
Many of Credit Corp’s innovations are in sustainability and responsible practices. It has also implemented a system that monitors its conversations, detecting when things are escalating and flagging the call so a member of the customer service team can intervene. “That helps us control our complaint volumes by heading off the potential for a complaint at a very early stage,” Thomas explains. “That’s very innovative, and it’s something that other companies in our industry aren’t doing.”
Although competitors are working on similar solutions to help them close the gap, Credit Corp continues to work hard to stay ahead. “Our lending business Wallet Wizard is a great example,” he says. “It is a thoroughly innovative fintech business, which uses automated algorithms, artificial intelligence and machine learning to create credit scorecards using a large number of data points.”
Becoming a disruptor
Wallet Wizard aims to offer consumers, even those with poor credit records, a “uniquely sustainable borrowing alternative” to eliminate the need to resort to payday loans. “The principal evil with a payday loan is the high repayment, which effectively means the customers get into a debt spiral because they can’t properly afford the repayments on the loan without deferring rent or an electricity bill or some other necessary expenditure, so they end up having to borrow again,” Thomas explains. “It eventually spirals, they need numerous loans and, ultimately, many will experience some kind of financial collapse.”
Approaching the matter as a problem to solve, Credit Corp looked at how to control the risk and losses for these customers. “Our aim was to get a financial outcome and offer consumers a much lower-cost product with lower repayments over a more sustainable period, so a much longer duration of repayment,” he says.
Thomas is confident that Wallet Wizard achieves all of these objectives. “As a consequence, there really aren’t many payday lenders left operating in Australia anymore. We think of ourselves as having thoroughly disrupted this segment of the financial services market to the benefit of consumers.”
For Credit Corp, the immediate impact of the pandemic was “incredibly severe”. “Clearly consumers and businesses prepared themselves for the worst possible outcome. What we saw in Australia, the US and New Zealand was that consumers immediately stopped repaying their debts and stopped borrowing, so they effectively battened down the hatches,” Thomas says.
The company responded with a range of measures, which included interest freezes, repayment moratoriums as well as other measures that weren’t part of the company’s everyday offering. It also worked hard to support its clients, “the sellers of debts”, by being there to buy debts from them no matter how bad things got. “We actually raised additional equity, so we were debt-free and held substantial cash. We were very strong, and that gave our clients a lot of confidence to count on us, come what may.”
Credit Corp’s third response focused on its investors by negotiating changes to purchasing agreements with clients to protect the company. “We certainly experienced a big profit reduction, but we didn’t fall into losses,” Thomas says.
The situation has since evolved, with the government stepping in to provide financial support in an unprecedented way. “That has driven a very rapid improvement in consumer financial positions. And we’ve seen repayments on debts recover, not in all instances all the way back to pre-COVID levels, but we’ve seen them recover,” Thomas says.
Now the issue is that consumer savings have increased to such an extent that demand for credit has become subdued, resulting in lower debt purchasing volumes and lending demand. “Obviously that’s had an impact on our profitability,” he admits.
Despite this, Thomas says the company has still seen “very strong” earnings growth in 2021 of 11% and is on track for “a very solid year in 2022”. As stimulus packages around the world start to wind up, he expects to see another wave of growth with some “exciting initiatives” in the pipeline.
A sweet spot
Having been at the company’s helm for an impressive 13 years, what is it about Credit Corp that holds Thomas’s interest? Having worked in numerous companies before coming on board, he has been able to apply the learnings gleaned from those organisations and build on their strengths while learning from their weaknesses.
“I wanted to help try and build something that is, at least in my mind, the ideal organisation,” he shares. “I think being the CEO of an ASX 200 company is just an amazing privilege, and I guess that’s why I’ve hung onto it for so long – you really do get to do what’s right and makes sense.”
The next goal for the company is to target the ASX 100, a significant challenge, Thomas concedes. “I think we’re around position 150, so we’ve still got a bit of work to do, but it would be great to get there before I sail off into the sunset,” he says.