Donna Cooper, general manager of New Zealand’s biggest debt collection company, Baycorp, does not have big shoulders, and has never wielded a baseball bat. Nor does the acquisition of a 50.25% stake in her company by the world’s largest debt purchaser give her more heavies behind her.

Instead, the addition of Encore Capital Group to the share register and board table gives Baycorp something much more valuable, Cooper says – Big Data.

The deal, announced today, sees Baycorp’s current owners, Oceania Capital and Australian superannuation fund SAS Trustee Capital, sell just over half the company to Nasdaq-listed Encore for an undisclosed sum.

The deal tells us as much about the debt collection industry as it does about Baycorp’s ownership structure; in particular that being cunning with data is seen as key to being competitive.

“One of the biggest assets in our business is data, and while Baycorp has the largest database of defaulters in this country, what Encore Capital has developed in terms of predictive data analysis is streets ahead of what exists anywhere else.”

Data gives Baycorp greater insight into what makes the debtors on its books tick, says Cooper, and that in turn gives the company a competitive advantage when it comes to  picking up business.

So why is data so important in debt collection?

Part of the puzzle of successful and efficient collection is around understanding how people behave in certain circumstances, and being able to use the most effective way of communicating with them to get them to pay the money they owe, Cooper says.

It might be as simple as using demographic data to work out whether to contact a particular defaulter by text or by phone. Or what time of day to call.

It might be learning which sort of customers tend to be spooked into paying up when they receive a “we have passed your debt onto a collection agency” letter, and what wording works best.

Or it might be deciding which customers are unlikely to budge without going to court, and avoiding all the unnecessary preliminaries – and getting the legal processes underway.

On any one day, Baycorp has around 300,000 “active accounts” – people that owe their clients money, Cooper says. And those are dealt with by just 600 staff.

“We can’t contact 300,000 people every day, so based on the data we can decide where it makes sense to focus the team’s time – what is the best use of resources.”

Cooper says Encore’s business has grown significantly in the last 3-5 years, to where it is now the world’s largest debt purchaser, employing more than 5,600 people worldwide, and collecting more than $US1.6 billion in 2014 alone.

“And a lot of that growth comes down to what they call ‘decision science’,” she says. Clever algorithms.

The Encore deal also gives Baycorp access to the minutae of customer behaviour research coming out of Encore.

Some of the more unexpected studies involve whether customers are more likely to open a scented letter than an unscented one – and if so, is citrus or lavender more effective? Encore has even tested whether people are more likely to pick up a letter which has a footprint on it – although why customers might be attracted to correspondence someone has already stomped on remains in wraps.

“Encore has behavioural psychologists really thinking about consumer behaviour, and because of the huge size of its business, it can test an idea and get a statistically valid response.”

Cooper says the process which led to the takeover began 6-8 months ago, when Baycorp started looking for a way to beef up its data analytics capabilities, in order to give it a competitive edge, particularly in the Australian market.

As the company researched the options, it looked at the systems Encore had developed for its business and reckoned being able to put them into Baycorp could potentially save 2-3 years of its own development.

When the two companies began discussions, Encore suggested it was keen to get a presence in the Australasian market, and a deal was struck.

Baycorp is the largest debt collection agency in New Zealand, and among the top five or six in Australia.

Cooper says a big focus over the last couple of years has been on treating the debtors on their books with more respect, engaging with them more, and getting the money owed, but also trying to help them be in a better financial position at the end of the process.

“We already do a number of things today, but the strategic partnership with Encore should allow us to turn what is an art into an automated science.

Six to 12 months from now I would hope we were starting to make the way we think about our analysis more sophisticated.” 

Baycorp started life as the Hutt Valley Collection Agency in 1956, listed on the NZ Stock Exchange in the 1980s, before moving back into private ownership. It moved into the Australian market in 1999.