Australian-based debt restructuring company Chapter Two plays a crucial part in Credit Intelligence’s strategy, and it has plans to scale up in 2022. 

Credit Intelligence (ASX:CI1) subsidiary ChapterTwo Australia is rapidly growing and rebounding strongly from the pandemic.

The Australian-based debt restructuring company increased its revenue in Q1 FY22 by 170% from the same period last year, to $400k.

This also represents a rise of 120% over the last quarter, as the company benefits from the recent launch of its app and ongoing marketing campaign.

Speaking directly with Stockhead, Chapter Two’s founder and managing director, Chris Mushan, said the solid results are testament to the company’s strong engagement with its clients.

“We manage our clients over five years, and we take on a lot of the responsibility to pay back their debt,” he told Stockhead.

“And now we’ve now seen a massive increase in our revenue, given there are a lot more clients coming on board with Chapter Two because of our new app.”

The app was launched in September, and was billed as the first of its kind in Australia.

It has the ability to list all of the clients’ debts in one place, removing the need for multiple internet banking accounts and direct debits.

Once debt arrangements are negotiated and repayments are made, the client’s debt balances will subsequently be updated on the app.

This enables clients to check both balances and repayment history on the one platform.

“We started marketing the app slowly from July, and there has been a massive increase in email inquiries since,” Mushan said.

He explained the process of signing up new customers could take as long as one month, as the company is extremely careful about the clients it’s bringing on board.

“It’s very important to us that we’re engaging with the right people, given that we’re negotiating with the banks and it’s our reputation on the line as well.”

“We can’t be bringing on people who have got $60k or $70k worth of debt, who are high income earners and just don’t want to pay back their debts. These are not the right clients for us,” he continued.


BNPL is changing the debt industry

Since COVID, many creditors have not been enforcing debt collection, but Mushan says that has changed recently.

“Banks have now started selling big books of debt again where they previously hadn’t been, so we’re seeing a lot more debt collectors chasing delinquent accounts.”

As a result, people are now feeling the pressure as many haven’t been paying back debts over the past year.

This problem has been exacerbated by the rise in Buy Now Pay Later (BNPL) offerings, which Mushan said has completely changed the industry and scope of work that he looks at.

“A couple of years ago, we were only dealing with people who had credit card and personal loan debts. But now most of our clients have at least three or four of these BNPL debts as well,” he said.

The problem, he says, is that these BNPL lenders don’t do credit checks as they fall outside the purview of the NCA (National Credit Act).

Another problem for BNPL consumers is that repayments have to be made within four weeks before late fee charges are triggered.

These BNPL payments usually get paid first before their mortgages, as they are mainly small amounts paid on direct debits.

“The BNPL is putting pressure on the rest of people’s expenses, such as their mortgages, credit cards and personal loans,” Mushan said.

“They’re effectively putting  many Australian consumers in a lot more cash flow squeeze.”


A big year ahead

Most other debt restructuring companies typically focus on consumer insolvency, which comes under the bankruptcy act.

In this arrangement, the bankrupt party would normally have to repay creditors through the bank or a bankruptcy trustee, which impacts their credit file.

What Chapter Two does differently is that it focuses on what’s called ‘informal debt arrangements’.

There are two key services it offers – a hardship arrangement and an informal agreement.

“We could put the debtor into a hardship arrangement with the bank for six months, so we can work with them on a solution,” Mushan explained.

“If the debtor could get his hands on some funds by the end of six months, we could help negotiate with the banks to accept the payment and partially write off the debt.”

“An informal agreement on the other hand, is where we help negotiate a payment plan with the banks generally over five years, and pay the debt down over time, with the interest frozen.”

What the new app does is it will show all these repayments to the creditors, and how much debt balance they’ve got left, along with their credit score over time.

The technology also allows Chapter Two the ability to cross-sell.  For example, if a client can show a good repayment history, then Chapter Two could re-analyse their situation and work with its in-house mortgage broking team to offer them a home loan.

It’s a unique app that’s currently not available with any other debt management company.

“2022 will be big for Chapter Two, as we grow our marketing team and expand our app services and offering,” Mushan said.

This article was developed in collaboration with Credit Intelligence, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.