Replacing Debt Collectors With Tech Goes Wrong at Provident
Provident Plunges Most on Record as Staff Cuts Disrupt Sales
(Bloomberg) -- Companies looking to replace workers with technology might turn to Britain’s Provident Financial Plc to see how it can go wrong.
For more than a century, the subprime lender’s business model saw self-employed salesmen who set their own schedules going door-to-door in working-class areas, doubling as debt collectors when loans came due. In a February revamp, Chief Executive Officer Peter Crook said he was letting those 4,500 freelancers go, replacing them with 2,500 full-time staff whose appointments with borrowers would be scheduled by analytical software, iPads linking them to hands-on, head-office control.
During the transition, the self-employed debt collectors stopped working as hard and staff attrition was higher than expected, Crook said in an interview Wednesday. Earlier, Provident reported profit almost halved at its consumer credit division, and the shares plunged the most on record.
“People knew they were leaving and therefore probably haven’t bothered doing their jobs,” said Gary Greenwood, an analyst at Shore Capital in Liverpool, England. “Management had underestimated the extent of that. Questions will be asked now, and confidence in them will have taken a knock.”
Social Reform
Extending credit to the poor has been a great business: Provident stock tripled in the past decade while Britain’s big banks stumbled in the financial crisis. Started in 1880 by social reformer Joshua Waddilove in the Northern English city of Bradford, Provident serves 2.4 million customers, many of them unemployed or on welfare. Its receivables book was worth about 2 billion pounds ($2.5 billion) at the end of 2016. Besides door-to-door loans, it operates an online short-term lending business, installment loans and a credit-card brand.
Crook, who has been Provident’s CEO since 2007, says subprime lending is still a good business in Britain, even as observers from the Bank of England to George Soros weigh in with concerns about a buildup of consumer debt and a slowing economy as Brexit approaches. He said mainstream lenders would be harder hit in a downturn than his company, which he said verifies the income for all of its customers before issuing loans.
“We’ve got some more customers in arrears -- that doesn’t mean they’re bad loans; they’ve just not been serviced properly,” Crook said. “The management team has not had their finest hour. We need to have a bit of a post-mortem.”
The stock plunged as much as 20 percent, the most since at least 1989, and was down 18 percent at 2:40 p.m. in London.
Provident said there had been no change in the underlying quality of the home credit receivables book, though issuance of new loans has stalled with so many fewer agents to go door to door. New credit issued for the five months to May was 37 million pounds below the prior year.
Still, Crook is adamant that the change to software-managed processes will pay off.
“All we’ve got here is some disruption as we’ve gone through the change,” he said. “The benefits of the new model are completely unchanged, and I’m confident in our ability to deliver that.”
To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net.
To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net, Keith Campbell, Jon Menon