Collecting on the Comeback: Credit Corp’s US Turnaround

Credit Corp CEO Thomas Beregi explains why a debt buyer built a lending business, why it is the last to know when the economy turns, and why discipline matters most when prices rise.

Almost 20 Years in the Business

Thomas joined Credit Corp as CFO in 2007, when it had around 130 people and operated only in Australia, in one line of business: buying and collecting debt. He describes a company that went from small-cap market darling to small-cap market pariah shortly after he arrived, and has been through plenty of ups and downs since.

What has stayed constant, he says, is the way it treats consumers, including its respectful practice and its ability to respond to people in hardship. What has changed is discipline, with accountability rigours that the business did not have back then.

One thing that has always been really consistent is the way we treat consumers and our interaction with consumers, even when I joined all those years ago.

— Thomas Beregi

Growth since then has been almost entirely organic. Credit Corp now has a lending business, a large US debt buying operation, a recently started UK lending business, operations in New Zealand and a large offshoring platform in the Philippines.

A Shrinking Home Market

Simon Hinsley asked how the business splits across Australia, the US and the UK. Thomas says Australia has always been a strong position, but the market has contracted. Total debt sale volumes are now only about 40% of what they were five years ago.

Having the core business that made most of its earnings lose 60% of its market and keep growing, he says, tells you that other things have been going on. The lending business is now the biggest part of earnings, and the US is another big component. Australia remains important and profitable, and it carries a disproportionate share of the company’s overhead. He calls it a great testing ground that provides the backbone for lending and the US.

Debt Buyer or Lender?

Simon wondered whether it is unfair to still call Credit Corp a debt collector. Thomas does not see anything pejorative in the term, and says lending is a big part of the business. Debt buying will always be opportunistic, with times when prices are too high and competitors get too excited, and times when you want to throw as much as you can at an opportunity.

This year’s example is the chance to buy HSBC’s runoff credit card book. Thomas says it is not a challenging transaction for Credit Corp, since few debt buyers can absorb one that large, and it is a performing book with little heavy collection activity. HSBC will deactivate the cards, most customers will repay within the interest-free period or shortly after, and Credit Corp will then take on what is left. A lot of the cash flow comes in the first three years.

If we weren’t in debt buying in Australia, we wouldn’t have had that opportunity.

— Thomas Beregi

Such deals are few and far between. There have been two in the last 12 months, and the previous similar one was about five years ago, so the business also has to survive on the regular, consistent flow of charge-offs. Lending, he says, gives a more consistent growth trajectory.

Inside WalletWizard

WalletWizard is a cash loan of about $2,000, repaid over about 18 months. Its customers generally have poorer credit records, with defaults and issues, so they cannot walk into a bank and leave with a credit card. They are usually employed, with most of their income coming from a job, on lower incomes.

Thomas says most have not managed their cash flow well. They made a one-off purchase, perhaps a holiday, and now face the bills. The business is about speed and being present, with a reasonably rigorous underwriting process that is largely based on bank transaction data.

He is quick to correct a misconception about the link between the two businesses: Credit Corp does not buy an account from a bank and then refinance the customer. If a debt buying customer later applies for credit, they will most likely be declined.

We can see what the past relationship with Credit Corp has been, but there’s no cross-selling. There’s no advantage in that regard.

— Thomas Beregi

The debt buying side did teach the lending side early on, by showing which customers kept to their payment plans. Ten or twelve years on, the company has built more sophisticated scorecards on bank transaction data, but still uses its deep late-stage recoveries experience to limit losses. People also move between the two businesses: lending rarely recruits externally, and most staff join debt buying and work through the ranks.

AI: A Cost Today, a Benefit Tomorrow

Thomas says Credit Corp has done a lot with AI. Back-office uses include coding and correspondence, and he points out that many customers now complain using AI, with responses drafted by AI and always reviewed by a human. On the customer-facing side, after-call work such as updating the system, summarising the call and setting the next action is automated, and information is surfaced while staff are on the phone. There is also some automated scripting and prompting.

Asked whether the benefits have arrived, he is candid that for now it is a cost, and the company has to be near the front to stay competitive. The benefits come in two ways: efficiency on one side and effectiveness on the other, with the question of whether it can collect more. So far there have been marginal savings.

It allows us to not waste expensive labor on things that can happen automatically, and allocate our labor to where only a human can create value.

— Thomas Beregi

The Last to Know

People often think Credit Corp is the canary in the coal mine for the economy. Thomas says it is the opposite. Customers are often struggling in good times as well as bad, so the signal can mislead, and a customer must go at least six months without paying before being charged off and sold to Credit Corp, so it sees things later.

Interest rates matter less than people assume, because the vast majority of its customers do not have a mortgage. Cost of living has increased demand for lending, but for debt collection the key issue is employment and the fear of losing it. He recalls the start of COVID, when customers rang in breaking their repayment arrangements even though they had not lost their jobs, because they felt they might.

A weaker consumer is a complicated question. In general, Credit Corp likes flux, with things changing but eventually recovering. Dislocation creates supply and tends to depress prices, which suits an opportunistic buyer running surplus capital and low gearing, and because it collects over about eight years, it benefits when people regain employment.

The US: Discipline When Prices Rise

Simon asked what the market was telling Credit Corp when its share price fell on the day of the result. Thomas says it recovered afterwards, but the one disappointing part of the announcement was the US purchasing outlook. The market is looking for growth from the US, and Credit Corp said it would buy less than the year before. He thinks the reaction was legitimate.

Prices go up, we reduce our purchasing. That’s the way it works.

— Thomas Beregi

It makes the business hard to model as a straight line. The aim is to invest very heavily when prices are good, to the limit of its ability to obtain capital. Thomas admits Credit Corp missed that opportunity in the US about four years ago, because operational problems meant its performance did not justify the purchasing. In hindsight, it should have bought much more, which would have smoothed the lean period that may now run for the next 12 to 18 months.

COVID is a convenient excuse, since the team could not travel, but Thomas says running a public company is about accountability and results. The fix was more on-the-ground leadership in the US, rather than functions led from Australia, so the operation is more connected to the market and knows how it benchmarks against competitors.

Why Humm?

Simon asked about Credit Corp’s interest in Humm Group over six or seven months, and whether it walked away on discipline. Thomas says it did not really walk away: it put a price to the Humm board, which was summarily dismissed. Thomas says Credit Corp remains interested.

The appeal is distribution. Credit Corp’s lending business advertises directly and does not acquire customers through retail or point-of-sale channels. Thomas says the rise of buy now, pay later showed how powerful point of sale is.

Consumers do not wake up and say, “Gee, I wish I had a loan.” They wake up and they say, “Gee, I wish I had that thing.” And if you’re there at the checkout, that’s a powerful place to be.

— Thomas Beregi

He thinks Credit Corp was too late to build that itself, and that Humm’s roughly 25,000 points of distribution in Australia are very powerful. More broadly, the company has defined targets, starts organically where it can, and is trialling other ways into point-of-sale lending. It also has ambitions to be a debt buyer in other countries with vibrant debt sale markets, and is fielding M&A opportunities. In the UK, it started lending organically and will also look at inorganic options.

They Won’t All Fire at Once

Asked which of Australia, the US and the UK is most exciting, Thomas says all of them, but investors should understand they will not all fire at the same time. That is deliberate. A pure debt buyer in one market faces a trap when prices rise: you either wait, or compromise your return and pay more.

As a debt buyer who’s paying too high a price, there’s no getting back. That is just a road to economic perdition.

— Thomas Beregi

Having several businesses means markets can move in different directions. The aim is steady, sustainable growth with low gearing, with the ebbs and flows in debt buying offset elsewhere.

Leading Differently

Reflecting on almost 20 years, Thomas says his role is increasingly about people. He has learned that his own ideas are the hardest to execute, because he then has to convince everyone else to follow them.

It’s much better if the ideas come from the people who are gonna execute them. Having someone’s energy and buy-in will more than offset whatever my preferences for perfection may be.

— Thomas Beregi

He says he tries not to meddle as much as he used to, and calls it learning on the job. Looking two to three years ahead, he hopes the things Credit Corp is working on come to fruition: much higher US earnings with a bigger purchasing program, a profitable UK lending business, and in Australia the Wizard credit card product performing well and competing with WalletWizard in contribution.