The collections industry is consolidating at a rapid pace. While this consolidation leaves many obvious winners and losers, thousands of local players are discovering they can no longer keep up with rising technological expenses, increasingly complex regulations, and the ever-changing behaviors of consumers. Additionally, many of the same players are experiencing retirement of owners who do not have a plan in place for succession.
Many of the PE-backed consolidations look at this trend as an opportunity to increase scale through the aggregation of revenue. PCA Global looks at this trend differently. PCA Global sees an opportunity to create a diverse, multi-capable platform that is going to be able to produce results regardless of the economic conditions.
“It’s the breadth of our offerings that set us apart,” stated Adam Cohen, CEO of PCA Global Ventures. PCA Global has completed three acquisitions to date and is working on additional acquisitions within the next couple of years. Unlike most other traditional consolidation efforts, PCA Global is not simply looking to acquire market share. PCA Global is building multiple integrated companies that will work together instead of competing against each other.
Perfect Storm in the Collections Space
There are many major trends occurring simultaneously in the collections space that are placing stress on vendors of all sizes:
Demographics
The “Great Wealth Transfer” is expected to transfer tens of trillions of dollars from Baby Boomers to Gen X and Gen Y over the next twenty years. As a result, there is a growing focus on collecting assets during estates and probate recoveries. But to make the most of the opportunities associated with the Great Wealth Transfer, you need to have a sophisticated approach to both law and data. You also need the expertise of teams that are capable of interacting with consumers in a highly sensitive manner at the state level. Most regional agencies lack the capability to develop this internally.
Economic Volatility
The current economic climate of volatility creates a new dynamic. Rising delinquency rates coupled with growth in employment create a scenario that requires highly flexible operations. Delinquencies surge upward, causing volumes and, therefore, costs to increase. If you do not have scalable technology and automation to handle the increased volume, your margins will shrink very quickly.
Consumer Behavior
Consumers now expect a digital-first experience when interacting with service providers. This includes self-service portals, mobile payment options, and the ability to communicate online on their own terms. Creating and maintaining a digital-first experience requires a significant amount of continuous investment.
Adam Cohen recognizes that the combination of these factors creates opportunities for PCA Global to make strategic acquisitions throughout the collections industry. To do this, however, he needed to create a method of structuring the newly acquired companies into a single platform. By organizing all PCA Global’s acquired companies into a single platform, he was able to optimize customer experience at all levels of service.
Four-Vertical Platform
When PCA Global began developing its platform, it did not start with a generalist collections agency and then add on capabilities as they became available. This platform was built as a whole centered on four distinct verticals:
Phillips & Cohen Associates
Phillips & Cohen Associates has been providing services related to probate and estate recovery for over thirty years. When a creditor is managing deceased accounts, the expertise of a highly specialized agency like Phillips & Cohen Associates is critical.
Invenio Financial
Invenio Financial is engaged in debt purchasing. Invenio purchases portfolios of debt and manages them on the behalf of their clients. This creates a different risk profile and economic model for clients compared to those Phillips & Cohen Associates.
The Estate Registry
Serving consumers and lenders, the Estate Registry offers proprietary technology solutions to manage communication regarding inheritances. The Estate Registry is particularly adept at building stronger client relationships, which enhances brand image and customer loyalty for PCA Global.
Ardent Credit Services
PCA Global has also acquired Ardent Credit Services – a traditional collections company that handles live consumers. The purchase of Ardent Credit Services filled an important gap in PCA Global’s platform and allowed Ardent to maintain its branding and customer base.
Each of PCA Global’s four companies operates independently with its own management team and brand identity. But they all utilize a common technology infrastructure, shared compliance support, and access to a common data repository.
The Need for a Unified Platform
Creditors that rely on many different of collection vendors with incompatible compliance and operational processes inevitably face dauntingly high levels of compliance and operational complexity. Conversely, a single unified platform like PCA Global’s can provide multiple services while providing consistent reporting and a centralized governing body to handle a wide range of issues across the collections spectrum.
Organizations that manage their own recovery and collections operations have their own challenges to overcome. These challenges might range from fixed cost increases to rising regulatory risk to the burdensome process of maintaining compliant staff and adequate technology to meet fluctuating collections demands.
Value Created Through Cross-Servicing Exceeds Cost Savings
Although many stories about consolidation in the collections industry focus on the cost savings created by eliminating redundant systems, reducing overhead, or negotiating better pricing with vendors, few of them create sustained value beyond that. PCA Global provides cross-servicing among its pillar companies. For example, a creditor who used Phillips & Cohen for estate recovery could potentially leverage that relationship to obtain traditional collection services from Ardent. If a creditor wished to sell a portfolio rather than place it, they could use Invenio Financial to do so.
A Strategic Acquisition Strategy
PCA Global has strategically limited its acquisition activity since its inception. Before acquiring a company, PCA Global will assess whether the company will enhance PCA Global’s platform capabilities. “We’re not interested in adding businesses to our platform that do not add value to the overall platform,” stated Cohen.
By limiting the types of businesses PCA Global acquires, the organization avoids a number of the challenges associated with integrating multiple acquisitions. Many organizations experience reduced margins and a loss of strategic direction resulting from the increased complexity associated with operating an increased number of businesses.
Technology as a Competitive Advantage
Modern collection practices involve the use of a number of digital communication methods, workflow automation, compliance monitoring, data analysis, and artificial intelligence (AI) to support process improvements. The cost of developing and maintaining these systems is high and continuous. With a multi-vertical platform such as PCA Global, the benefits of the systems developed to support one vertical are available to all other verticals.
Cohen was quick to point out that the use of AI in the collection process does not negate the need for human collectors. Human collectors continue to provide the important aspects of negotiation and emotional connection to complex situations.
Technology will also be responsible for providing creditors with the necessary tools to monitor the use of AI technologies within the creditor’s organization and ensure compliance with creditor requirements. PCA Global expects that the transparency and accountability provided by technology will continue to provide opportunities for competitive advantage.
What This Means for the Collection Industry
As it evolves, the collection industry is rapidly becoming segmented into two categories of businesses: technology-enabled platforms and small regional agencies that lack the financial and technological capacity to compete with those technology-enabled platforms. In this environment, regional agencies must either invest significantly/reduce margins to remain competitive or sell to a larger platform.
The acquisition strategy employed by PCA Global illustrates how a specialized collection agency can evolve into a technology-enabled, platform-based collection services organization. Rather than focusing on creating scale, PCA Global has created a diversified collection services platform that meets the growing needs of creditors, engaging with multiple service providers through a single partnership.
An additional impact of the platform approach employed by PCA Global is its effect on the long-term strategic planning efforts of creditors and acquired companies. For creditors, partnering with an organization that has multiple integrated capabilities reduces the frequency of evaluating vendors as market conditions change. For acquired companies, joining a platform like PCA Global provides access to technology, compliance infrastructure, and capital that would otherwise be unattainable.
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