Old habits die hard in the world of doorstep lending. Last week investors in Provident Financial learnt this the hard way, after it admitted its attempt to modernise cash collections had gone horribly wrong.
The sub-prime lender’s shares dived more than 17% — leaving investors such as Neil Woodford nursing hefty losses — although they have since recovered a bit.
Provident’s doorstep lending business has relied for decades on an army of self-employed collection “agents”. The Lady from the Provvy (they are typically women) knocks on the same doors, usually lending a few hundred pounds while catching up over a cup of tea. This relationship has stood the test of time, allowing the company to ride out recessions thanks to its agents’ knowledge of their customers’ circumstances. Earlier this year the Provident decided to “eliminate” its 4,500 agents. It had already slashed them from 10,000 in 2013. In their place it is hiring 2,500 full-time “customer experience managers”.
The Provvy’s problem is one of incentives and habits. Agents were paid via commission — 8% of every loan. They could work when they chose, fitting collections around their busy lives. The harder they worked, the more they and the company earned. New employees are paid salaries of up to £27,000, plus a bonus of up to 10% based on a waffly new metric of “customer experience”.
The results of this overhaul are not encouraging: agents are quitting before they’re fired, collections and sales are falling, leaving a £40m shortfall. Customers, perhaps baffled by the new approach, are quitting. Profits in the division will slump by almost half to £60m this year. Rivals will recruit its former agents and swallow customers.
Boss Peter Crook’s strategy has some logic. It’s only a matter of time before the Financial Conduct Authority targets doorstep lenders who are paid on commission.
Meanwhile, customers who borrow on the doorstep are an ageing and dwindling breed, as hard-up households increasingly opt to stick it on the plastic instead. Doorstep lending now makes up only about a third of Provident’s profits, dwarfed by its Vanquis Bank credit card arm. Its new employees will use an array of gadgetry to predict bad debts better, improve efficiency and target new customers.
In time, the Provvy should regain its mojo as staff and customers get used to this new way of working. But it is unclear whether it will deliver the same results.
Until then, avoid.
