The timing of the announcement could not have been more interesting! If you wanted publicity, a few days before the Annual ACA Conference had to be the best time. We did not keep count, but it was many times that we were asked “What do you think they are going to do?” I am sure that Columbia Ultimate’s clients will see this in one way, while Ontario Systems will present this positively from a marketing angle. But spin aside, what does this really do for the industry and Columbia Ultimate’s clients? I decided to write this article, not to advertise or promote Quantrax, but because I feel that I am uniquely qualified to discuss the topic. I was also tired of answering the same question over and over again, and this would handle that problem too!

I started in the collection industry at a company called Dexel Systems in the mid 80’s. There were 3 key players in collection technology at that time – Dexel Systems, Ontario Systems and Columbia Ultimate (CUBS). Dexel had a presence in the US and Canada, and we believed (or were made to believe) that it was the best product at the time. Remember, the industry was coming off card systems, and anything new was considered amazing! I think Dexel failed to focus on the product during those early years, while Ontario and CUBS had a better mid-term strategy and stronger management. By 1987, Dexel was struggling and continued for a few more years with little direction. They sold to Columbia Ultimate in the early 1990’s, with Columbia Ultimate clearly unaware that Quantrax Corporation had built a new collection system, and had commitments to convert several Dexel clients.

In the 1990’s Ontario Systems and CUBS significantly grew their installed base. Both had found a way to scale, in an industry that saw the creation of much larger collection operations that required much more powerful systems and machines, to handle data volumes and large numbers of concurrent users. From a historical perspective, I should also mention CR Software which was founded in 1984, and was becoming a force in the industry, largely fueled by their relationship with a company called NCO. As the collection industry expanded in the 1990’s Ontario Systems, CUBS and CR Software grew and enjoyed very profitable periods.

Y2K was a distraction for everyone. But plenty of companies were automating for the first time. There were opportunities as companies needed new software, as they outgrew smaller, limited entry systems. They were great times for the major players. I believe that Ontario Systems was successful at creating a reputation for their market share in addition to being able to scale. For companies like Quantrax, they were clearly the dominant player and the “one to beat”. As a software developer, there is something great about getting to a point where you can make a profit with maintenance revenues only. You have created the goose that lays the golden egg! Everyone was happy – vendors and their clients. Vendors delivered “enhancements”, assuring their core user base that they had the best technology. Larger users had some concerns, because their technology could not keep up with the business requirements of more complex environments. This challenge was overcome with heavy spending on custom code and expensive internal IT departments.

Unfortunately, nothing good lasts forever, and I think the collection software industry saw the signs, but did not react as they should have.

  • Commission rates were falling
  • The weaknesses of original software design was becoming apparent. You may get your initial design right, but industry and technology changes can make software obsolete very quickly
  • Computer technology was changing in a way it was almost impossible to keep up. It was a nightmare for developers to keep changing their software to keep up with and take advantage of newer PC technology
  • The industry was calling for more power, automation and ease of use

The solution to all of this was for the dominant players to set an example by redesigning their products and building new systems ground up. After all, our core designs were now 20 years old; far too long for software to survive. Users who were paying maintenance for years were starting to feel they were not getting value for money. The market was getting saturated with regard to new sales. Everyone was offering similar products. The major players were struggling to build new features over aging designs. What happened? In the 2000’s, everyone decided to invest in new products. They had to have saved some of those profits, because building a new product can be extremely expensive. CR Software announced Titanium, CUBS promised Ajility and Ontario Systems announced that their partnership with Microsoft would create the greatest technology we had ever seen. They were doing the right thing, and they had the deep pockets to pull it off. Their system Collect Savvy did not deliver or work as promised. First deployed in 2010, it was finally withdrawn from the market in 2014, after many years of the company’s valuable R & D resources were channeled to that product. In the case of CUBS, the fact that they still advertise their original “Collector System” has to be a good indicator of the difficulty they had in deploying their newer technology Ajility, across their user base.

What was really happening? The two companies who together controlled 31% of the collection software market (recent survey by BillingTree), were selling or supporting a large number of systems that were designed 20 years ago. They could not meet today’s compliance or mobile technology requirements, and were irresponsibly spinning that in their favor. Companies like Quantrax, who focused on true product development as opposed to growing sales, had much stronger and relevant products, while these two larger companies were struggling to make new sales in a saturated collection agency market. Is it a surprise that CR Software was sold to FICO? That Latitude was bought by the dialer company Interactive Intelligence? That Ontario Systems was focusing on first party collections, while CUBS seems to have lost its way?

Both companies have tremendous value. They have hundreds of clients who generate significant maintenance revenues. However, they also needed new sales, because that keeps them relevant. Unfortunately, they may have not been fair to their clients. When you buy collection software, you expect your vendor to understand what you need. For the maintenance you pay, you expect them to prepare you for changes in the industry as well as applying new technology to their advantage. But what if they don’t? Or worse, what if they don’t and you do not even realize it? We saw this coming years ago. Steve Jobs is my idol. He was different. He did not listen to his customers, saying “It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” In this modern technology age, his thinking may be somewhat relevant in the collection industry. This industry has lost control. When frivolous lawsuits were first filed, we settled for $2,000 which we justified by saying it was less than our deductible. We created an industry of attorneys, who now cost us tens of thousands to settle one suit because our insurance has also gone up! We did not police ourselves when it came to how we communicated with our consumers. Our technology had not kept up, and was not helping with our rapidly increasing manual controls and processes. Our defense was always “Most of us are good guys. There are a few bad actors”. We probably created the CFPB. Ontario Systems and CUBS needed a change. The acquisition was probably the answer for both companies.

It will be interesting to see how Ontario spins this.

  • They have said “Over the past 30 years, both companies have proven themselves as consistent innovators, attracting the best ARM customers in the space.” Is it fair to make such a claim when you do not have a new product that has been widely accepted by your many clients in the last 15 years?
  • They have stated that “In addition to opportunities in adjacent verticals, the merger combines two companies with broad product and services offerings and creates benefit opportunities for existing users of both companies”. Wouldn’t you like to know how a CUBS customer will benefit from Ontario’s technology and vice versa?
  • Fred Houston of CUBS has stated “Beyond the people, I’m confident our customers will benefit from several of the Ontario Systems product and services offerings, helping move their businesses forward.” Is he saying that these two diverse products and architectures will easily work with each other and quickly give CUBS users much-needed new products?

No one can predict the outcome of this interesting “merger”. Historically, when companies are acquired, resources are consolidated, expenses are cut and products are consolidated and some are eliminated. Think about Nokia, once the leader in cell phone sales. They are going away in spite of being acquired by Microsoft. The main reason they failed? They rode their advantage, but lost to the new trends that they failed to keep up with – Their competition did it better. Do we remember Compaq, Blockbuster and Borders? They were acquired too.

It is not easy for a collection agency to spin the fact that their software vendor was suddenly acquired by a larger competitor. It would be great if Ontario made a statement that they would be investing millions of dollars to enhance the “Collector System” or migrate all those clients to Ajility and preserve their investment in custom code and processes. If they do not do that, they will expect the CUBS clients to continue on their existing systems or convert to Artiva, their current offering (It is unlikely that Ontario will invest heavily in enhancing the existing CUBS products and maintaining two major products). How easy is it for a CUBS user to convert to Artiva? Ignore costs for the moment. If Ontario Systems could not convince its many clients to convert to its own new product Collect Savvy, how easy is it going to be to convert hundreds of CUBS clients to Artiva? And even if they found a way to do it, what do CUBS users gain? They will be moving from one aging platform to another.

Is there a silver lining somewhere? Of course! CUBS users will be forced to look around quickly. They may have to spend some money, but that may be the investment they need to make, to reinvent themselves and take on today’s problems with modern technology. This is a reactive industry. By forcing companies to be proactive, we may begin to see a much-needed change and re-engineering of an important industry.

 
Ranjan Dharmaraja / CEO
Quantrax Corporation Inc.