February 2000

Skip Tracers Seek Out a Specialty Niche
The Internet has revolutionized the ancient art of skip tracing, placing electronic do-it-yourself power in end-users’ hands. So why are more traditional vendors happy?

By Jesse Snyder

Skip tracing has been part of the collections world for as long as there have been debtors who changed their addresses. Before collectors can make arrangements for payment, they must be able to locate the delinquent borrower. It's often a difficult task, but at heart the same simple quest: Find the debtor.

Many of the techniques used to do that haven't changed much since the introduction of the telephone. But the pace of change is picking up, driven by a variety of factors - from industry consolidation that is shrinking margins for collections agencies and skip-tracing vendors to computer integration that is automating the process.

A more revolutionary change has been wrought by the Internet, which links skip-tracing firms and customers together seamlessly online at far lower prices than shipped disks and CD-ROMs or computer modems, has reduced turnaround time from days to minutes, and has given customers the power to do it themselves. "Anybody with a web browser" can track down debtors themselves, says Greg M. Ford, vice president of sales and marketing for DirectoryNet Inc. of Alpharetta, Ga., an electronic directory service. "Information is power," says Gerald P. Venner, vice president of sales and marketing for BusinessCreditUSA.com. "The availability and access to information is what makes a company successful."

A Market Boom

Yet for all the do-it-yourself empowerment the Internet has brought to users, traditional skip-tracing specialists appear to be flourishing. Part of that undoubtedly is the boost in demand for services fueled by a booming economy, expanding consumer and commercial credit and a creditor push into subprime lending with its higher delinquency rates. The emerging distressed-debt market also raises demand for skip-tracing services - because those debts are being actively pursued far longer than before and because older debts require more skip tracing. More demand creates opportunity for skip tracers, even as the easier-to-find segment of skip tracing becomes more of a low-margin commodity. In response, many veteran skip tracers are moving up the value-added ladder, offering more options, additional services, locating harder-to-find debtors, or integrating skip-tracing into related services. "The science is in the databases," says James Gabler, president of VeriFacts Inc. of Sterling, Ill. "The art is in people-related skills."

Dozens of new electronic directories and skip tracing services have flourished using Internet technology. Other existing skip tracing companies that were boutique shops have taken off by adapting Internet strategies. QuickInfo.net, a Denver-based firm, for one, has quadrupled in staff size since it went online two years ago, currently offering Internet access to 89 public record databases from 29 states. "It turned our company around 180 degrees," says Jeffrey J. Flood, QuickInfo.net sales manager. The firm still publishes some databases on CD-ROM for customers that don't have online access for in-house skip tracers, but most volume is online. In December, it opened a website with flat-rate pricing for access to all databases: www.flatrateinfo.com.

Similarly, Merlin Information Services of Kalispell, Mont. has grown from four employees when it relocated from Ojai, Calif. five years ago to 40 by adopting 'Net technology, says Andrea J. Falcon, marketing director. Merlin is working in cooperation with QuickInfo.net on flat-rate priced products, but it also is moving up the value-added ladder by focusing most of its attention on writing skip-tracing search algorithms that automate the process of finding the right party at the most current address or phone number. "Half our employees are programmers," Falcon says. "We have to be of value to [our customers] so they can make money."

Even major database providers are embracing the use of the Internet. Acollaid, previously a batch processing leader among skip-tracing products, is going online in the second quarter, says Steven E. Michael, Acollaid product manager. Marketing-database giant Acxiom Corp. acquired the Acollaid skip-tracing product line and BDS, a bankruptcy and deceased purging service, when it purchased Acollaid owner CG Marketing of Phoenix in May 1999. "We don't expect the online availability to affect our batch processing volume significantly," Michael says. "Acollaid Online is just [incremental growth]."

On the commercial skip-tracing side, BusinessCreditUSA.com of Omaha, Neb. launched an online version in December to supplement its CD-ROMs and printed directories, says Venner. The company is offering free credit reports and skip-tracing service through the end of February to build online presence, he adds. In addition, Info USA soon will be entering the consumer segment of skip tracing as well, since the firm acquired Donnelley Marketing in December, a major consumer marketing-data player. "This gives us a solid database of 120 million residential files," Venner says.

Companies that have offered electronic databases online to customers for awhile are seeing virtually no falloff in their batch processing work. Indeed, DirectoryNet.com has had a big bounce in batch processing. "Everyone is wringing labor out of every equation, says Ford, noting that shrinking margins in collections agency contingency fees means that agency managers must maximize efficiency in skip tracing and other routine tasks.

Meanwhile, DirectoryNet.com's online operations have attracted a number of smaller agencies and creditors conducting their own skip tracing. "They can now afford to do it themselves," Ford says. The 'Net "changed the way business is conducted."

It also has changed the process for collections-software providers. "We set up our system so customers can go online for whatever skip tracing [service] they want" and eliminate long-distance charges on modems used to connect with vendor computer systems, says R. Kai Langerdoen, market analyst for Columbia Ultimate Business Systems Inc. in Vancouver, Wash. It gives customers more options. Before, most accounts sent to vendors for skip tracing were sent via modem overnight to get lower long-distance rates, processed, and retrieved the next night with lower phone rates, Langerdoen says. "Now, collectors can go online and have the answer in an hour instead of two days."

It's a Given

Collection Data Systems, based in Simi Valley, Calif., sets up its Collect One-Tiger software system to accommodate online or batch skip tracing services and to retain each account's location history. Doing so is the minimum requirement for collections systems, says Steven Cohen, vice president of sales. "If the feature wasn't there, we wouldn't have the [system] sale."

Some value-added skip tracing specialists say the easy-access of electronic directories actually creates more room for them. RiskWise LLC, a St. Cloud, Minn.-based company, sees itself as a data integrator, which draws on a wide variety of databases and credit reports, but then uses proprietary methods to help some clients track debtors and others make credit granting decisions, says Mark V. Doman, executive vice president.

"We encourage the use of electronic directories," adds VeriFacts' Gabler. "There's some value and efficiency. But after the easy [skip traces], then what?" Much of Verifact's value is in helping customers match skip tracing costs against the value of the account, factoring in the age of the debt, balances, collectibility, and the percentage of accounts not found. "It's economic," he says. "Anybody can be found, but at what cost?"

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