Already roundly cursed by bankers and house buyers alike, let alone bond originators, the National Credit Act, law since June 1 this year, has not been a bed of roses for the above. House and car sales have slowed as credit checking has tightened, and the frustrations have been many for credit grantors and their clients - and the costs have been high. Nedbank reports that it budgeted between R150 and R250 million for implementation costs related to the NCA*.
In the meantime, bond approvals are taking longer: up from three days to three weeks, say some estate agents. And time, for sellers, realtors and banks, is money. Others say the backlog will be cleared as new systems become entrenched and understood. Whatever the long term outcome, it seems that despite the phasing of the legislation and the long lead times given to get their houses in order, this notice was not used to advantage by credit grantors. Few were ready and most, like Nedbank, spent millions on compliance.
In other countries credit processing is largely outsourced, where banks and retailers for instance, contract out the management of credit cards and loans. The number of store cards in the US that are outsourced, rather than being managed in-house, has risen from just over half in 2002 (53%) to 94% being outsourced to third parties in 2006. In the UK too, 8 out of 10 credit cards are managed by specialist outsourced agencies. In South Africa however, consumer finance specialists ACET Processing estimate the percentage of credit instruments that are outsourced has not even reached double figures.
The business case for outsourcing credit processing and management is simple. Companies like ACET Processing, a joint venture between leading South African credit risk management house PIC Solutions and global credit service provider First Data, have access to world-class best practice systems that would be prohibitively expensive for retailers and even banks to install, run and manage themselves - not just because of the initial hardware and software costs but also because the expert IT personnel required to set up and maintain such systems are thin on the ground and therefore very expensive. The upshot is that paying a monthly fee for outsourcing credit account management and processing makes a lot more business sense.
"The bottom line," says ACET Processing director, Hamish Houston, "is that outsourcing to experienced third party processors like ACET Processing can substantially reduce the time, money and personnel you expend on account management and processing, while allowing you to focus on what you do best - your core business. We provide the system that manages everything, from new account credit vetting and opening, real-time authorisations, through to account management and collections, so that the administration of credit is taken completely off clients' hands. With major credit granting organisations already reaping the benefits of our expertise, we think it is only a matter of time before others follow in the footsteps of their overseas counterparts."
Clients appear to agree. Metropolitan Card Operations Acting COO, Andrew Goodrich, comments: "In terms of our partnership with ACET Processing, the elapsed time - from project initiation to acceptance of the very first loan - was an impressive 4 months. Partnering with an organisation known for their specialist credit industry and ICT expertise allowed MCO to concentrate on growing our new business, thereby contributing significantly to the realisation of a competitive edge for our company."
Houston concludes: "Credit grantors in South Africa could have avoided the considerable costs associated with NCA compliance by following the global best practice of outsourcing credit processing and management to dedicated service providers. By outsourcing such back-office functions companies are able to focus capital investment on their core business rather than on maintaining internal systems and processes, which at the end of the day are not value-adding to their business."
*Nedbank Retail Investor Day presentation, November 2006, slide 11.
Get the latest issue of FAnews