Startup of the Week / TrueAccord: Restoring Humanity to Debt Collection Through Technology

This Israeli startup replaces the human debt collector with technology that seeks to find a middle ground between debtor and creditor.

Screengrab

Collecting bad debt is awful. Not only people and small businesses suffer. Monster businesses feel the hurt, too. Eighty percent of businesses in the United States routinely report impairment to cash flow due to late payments. Big companies, including Israeli telecom companies and banks, enlist law firms for the task, which consumers loathe – not that they would prefer masked thugs.

Ohad Samet, founder and CEO of TrueAccord, thought that, in the digital age, the collection paradigm could be updated. In Israel, debt collection is done by lawyers. In the United States, all anyone needs is a license and not even that in some states, he says. Naturally, the field also attracts unsavory types with some pretty disturbing methods, he adds.

The market is a big one. Debt collection in the United States alone amounts to about $13 billion a year. TrueAccord was founded on the basis of the theory that various debtors react to different stimuli using technology to define the different types, which are then approached about their debt using language they can relate to.

The art is to find the middle ground between forgiving the debt completely and employing an outside collection agency – before reaching the stage of intimidation. “That’s the basis on which our company was founded,” Samet says. “We assume that people who do not pay [their bills] have a problem, sometimes a temporary one, and we want to make peace between both sides – to move the collection process from a feeling of betrayal to one of process and rebuilding.”

TrueAccord automates the debt-collection process. Instead of employing human operators who can create conflict, its system is to engage the debtor in dialogue using digital messages – text messaging, email or telephone calls. The message and its medium vary according to the debt and the debtor. That differentiation is the heart of TrueAccord’s method, which it intends to patent.

Millennials like it light

Among TrueAccord’s 13 employees are programmers and experts in data and social science.

“The message varies according to many parameters, including the debtor’s age, gender, amount of debt, age of the debt and whether the debtor is a person or a company. People respond differently to different messages, so we have a behavior engineer in the company and a team that examines the content.”

For example, older people in more official positions tend to regard themselves more seriously, he explains. They respond better if the message is slimmer, written formally with the company name, date, amount of the debt, and so on, in official language.

“We discovered that baby boomers respond well to messages that mention social responsibility and the disgrace about owing money. But that kind of language doesn’t work with millennials [those born in the 1980s or 1990s]. They don’t accept scolding and moralizing,” Samet says. Millennials respond better to emails where the language is less heavy, less formal and even has a bit of humor, such as ‘Hey! I’m your debt – did you forget about me?’”

Analyzing the recipient of your message is complex. “What bit of text to send to whom at what time of the day and in what kind of manner,” adds Samet. “We’ve read lots of books and studies about negotiating. It’s a skill that requires an understanding of data, ability to gather information from the Internet, behavioral psychology and machine learning. This has never been done before.”

The company put out a closed beta version on a platform accessible to any business in the United States in mid-2013. “So far we’ve been working with specific clients, large customers such as oDesk, Shopify and Stripe, and now we’re approaching the general public. Anyone owed a debt that is documented in a contract can log into the website and register, and we will collect it,” Samet says.

How? The goal is to bring the parties to the company’s website and find out together what the problem is – why they aren’t paying. Then the creditor can decide to give the debtor a discount, set up a payment plan or agree to defer the debt. “We try hard to resolve the matter. We ask the customer if he has anything to say and suggest various solutions for payment. We also have ways to report a person who does not pay that could impair his credit rating and his ability to borrow in the future,” Samet says.

Here’s the $64,000 question: what are your success rates, and how much is your fee?

“The collection percentages depend on the segment and also on the age of the debt. The industry average is a success rate of 10% to 30% in collecting a year-old debt, and we are now in the performance range of the industry. As for the fee, we take no money in advance. We take 30% of what we collect.”

That’s a lot. Businesses already have to pay fees to credit companies and all kinds of players along the way.

“Our clients usually assume that the money is lost anyway, so 70% of something is better than zero percent of everything. We have another advantage: because the experience is a pleasant one, clients come back – even clients we thought we’d lost. Another difference between our company and the competition is that we also deal with small debts, starting with $3.”

TrueAccord, which is based in Silicon Valley, has raised $2 million so far. Among its investors are Max Levchin, one of the founders of PayPal; Ran Makavy, one of the Israeli entrepreneurs behind Snaptu, which was sold to Facebook; and Khosla Ventures, together with several other angel investors and small foundations.