Adam Parks (00:07)
Hello everybody, Adam Parks here with another episode of Receivables Podcast. Today I'm here with yet another industry legend, Mr. David Pauken who is the CEO of Convoke who has really been on the forefront of some of the technology moves that have driven our industry over the last 15 years. But Dave, thank you so much for coming on and joining me today. I really appreciate you sharing your insights.
Dave Pauken (00:31)
welcome, Adam. Thanks for having me on your program today.
Adam Parks (00:33)
Well, I gotta say, you've got one of the most interesting backgrounds, I think, in the space. And this always is my favorite part of the podcast, learning where people came to the debt collection industry from. for anyone who's not heard this story before, can you tell everyone a little bit about yourself and how you got to the seat that you're in today?
Dave Pauken (00:50)
Sure, happy to tell the story. I graduated college, I was an accountant. Went to work for this old accounting firm called Arthur Anderson. Was there for a long time, a dozen years. And it was time to leave the firm at them and I was looking for a job. And I got a job at a startup that was started by a college dropout in Bethesda, Maryland. And it was a marketing services firm. I went there to work there as the Chief Accountant and the company took off.
and it went public on the New York Stock Exchange. And this founder was Dan Snyder, who later acquired the Washington Redskins. That company went public and at the time, Dan was the youngest CEO ever on the New York Stock Exchange, later eclipsed by Mark Zuckerberg. That company, Snyder Communications, took off. It grew to billions in revenue and we eventually sold it to a company called Havas.
a French ad agency. He bought the Redskins. He asked me to join him there as the Chief Operating Officer. You know, I didn't grow up as a huge sports fan or football fan, but here I just, I fell into this job that people spend their life trying to get. And so here I was in sports entertainment. So I was there for six years as the Chief Operating Officer and
learned a lot about sports, it's really a business, contrary to what some people might think. You still have revenue you gotta grow and customers you have to serve and a product that you have to put on the field. so that's where I learned my business chops. And after some time I left, it was time to do something different and I wanted to get into technology. And I became the CEO of a local energy technology company here in the Washington area.
⁓ who was owned by some venture capitalist, grew that, sold it. And then some investors who had invested into Convoke asked me to come run this new startup. And the original business model had challenges to it. There were uncertain times in 2010. And ⁓ me and a couple of my partners eventually bought the business and restarted it.
into what it's become today. So that's how I got to where I am.
Adam Parks (02:56)
That's so
and you know, Convoke is a really common name across the industry. You're always well represented, you've you're always at the shows and the conferences. And it's just a very common phrase. But I don't know that everybody truly understands the storyline of this organization. And you know, the original business model is compared to how you've pivoted. And ultimately, I would like to talk about what you're seeing over the next five years, because I think you've had a great vision.
in the time that you've been managing that organization. So I'm curious to see what you're starting to think about over the next couple of years as well.
Dave Pauken (03:30)
So, well, shall I give you the origins and then... Okay, so the origin was there was a couple of debt buyers who were collection attorneys and debt buyers up in Michigan and they had a problem getting media and they were buying debt. And so the idea was, hey, this thing called the cloud was new back then. Can we take the media and put it in the cloud and whoever has permissible purpose to the account.
Adam Parks (03:32)
Yeah, let's start at the beginning of the storyline and we'll work our way through it.
Dave Pauken (03:56)
could get access to it. That was fundamentally the idea. So coders were hired, friends and family raised money, and we built a platform where media could go into the cloud. And if you could demonstrate that you owned the account, you could get access to the media. And we were fortunate enough to get a very first customer, which was a large bank. And we were able to prove out the model and that it actually worked.
Interestingly, so the original idea was just solving the media problem for debt sales. I can stop there and let you ask a question or just keep going.
Adam Parks (04:26)
So I mean, look,
I was living through it. I was buying debt around the time when giant Ryder trucks full of documents would show up and we had to bring in someone to scan it. I mean, I was there at the beginning of this and had an opportunity. mean, that was a major step in the industry going to a new level and being able to manage things in bulk. That's, mean, it really, the idea of digitizing media changed the debt buying industry.
forever. It's, I remember at that time, thinking about it and looking at the challenges of the cloud, because at the time, nobody trusted really putting anything into the cloud. It was such a new concept, even the terminology was really new. How you got ⁓ a major creditor to pioneer that with you, I think one has really helped to stake something in the ground that said this is a trustworthy service, but I can only imagine how difficult
Dave Pauken (05:05)
the cloud.
Yeah.
Adam Parks (05:22)
that lift must have been to get that first group on board.
Dave Pauken (05:25)
Yeah, was very difficult. They fortunately had a big problem and needed a solution. And so they were willing to take a chance on us. Sometimes, you know, when the pain is bad enough, you're willing to maybe look at something you otherwise wouldn't do to make a change. And they did. The challenge we had after that, though, Adam, you may recall back from those years that a lot of credit issuers actually stopped selling debt altogether.
Adam Parks (05:33)
Fair statement.
Dave Pauken (05:51)
And so we were struggling there for a while. But then the regulators said that credit issuers became responsible for the activities of a third party debt collector. And that happened, I think, in 2012. And that created an immediate overnight problem for a credit issuer. How are they going to oversee what these third parties are doing if they're responsible?
Dave Pauken (06:17)
And so what we did was we took the product, we were successfully getting media from a credit issuer to a third party. What if we just sort of flipped it on its head and got information from a third party and made it available to a credit issuer? So that's how we evolved to help solve the oversight problem that the industry faced pretty urgently in the early years.
Adam Parks (06:38)
You know, in that 2012-2014 timeframe is the same timeline that we created ComplyARM with the purpose of doing the same thing, but doing it from the perspective of complaints, disputes, and being able to move that data back and forth. We ended up selling that company to Provana in 2019 because it was a big problem. I mean, being able to understand now all of sudden you're responsible for all of these third party vendors, you can't stop collecting.
Dave Pauken (06:55)
Okay, yeah.
Adam Parks (07:05)
that revenue is expected in the bottom line. And that's, you know, it's in their financial reports. And you know, that that is a direct drive on profitability. So to just cut debt collection or litigation out was almost impossible. But the technologies, not only to let's say, managing a legal network, there was a lot of challenges in getting the documentation back and forth between these organizations. So it sounds like you had some of the
the right infrastructure technology at the right time to actually be able to execute on.
Dave Pauken (07:35)
Yeah, one of our strategies that we were trying to bring to the industry was, which was very difficult for them to absorb these regulatory changes, providing media, doing oversight. And what we wanted to try to educate our customers on is that, technology can be your friend. We don't have to stop collecting. can still collect. Let's just bring some technology tools to satisfy the changing regulatory environment.
Some collectors stopped, right? Some law firms were not in business or agencies stopped. We all saw that. But we tried to educate that, you can still collect. It's okay to do that under this new regime. That brought us into the field of data. So we were good with media and then we started capturing this data. And we found ourselves working alongside the recovery management systems.
of large financial institutions. The large recovery management systems were good at placements and recalls and balance tracking, but all of these oversight and media tools they didn't have. And so we found ourselves working alongside these systems. And so the way things have evolved here coming up to 2015 is we see credit issuers wanting a modern recovery management tool.
that allows them to do inventory management, that allows them to track balances, that manages their media, that gets them the information for the oversight in a one-stop shop. And then now that we're in this area of AI over the last, 2023, can I have business intelligence to help me be more compliant, have higher productivity and better performance?
collecting more money. Those three things. Compliance, productivity, performance.
Adam Parks (09:13)
Mm.
Centralizing those disparate systems is the only way to structure the data to be able to learn for what's coming in the future. So it sounds like you've taken this natural evolution to really providing an ancillary service to starting to provide the primary software or that consolidation of all of those different data points. Your standard debt collection software
wasn't really built for the purpose of managing third parties, right? It was built for collection agencies to manage themselves and banks would deploy something similar for their own collection efforts. But that's not always the infrastructure that you're looking for to be able to go out to third parties and to manage those other relationships, right? Because the flow of litigation data requirements is different than the flow of collections is different than if we were to sell accounts and how all that starts to look.
from a consulting standpoint, I've never worked at the banks, having worked with some of the banks from a consulting standpoint, that was always an issue was that their loan management system isn't built for collections. And either they don't have something and they were using spreadsheets and old school technology, but starting to structure all of that data in 2015 is really insightful going into where we are now in 2023, because if the data is not structured, it's not valuable, right?
Dave Pauken (10:34)
It's
not valuable. Yeah. It's a good point on the channels that you're bringing up, Adam, because a credit issuer, as you point out, has three choices ahead of them. They can sell the debt. They can use an agency. They can hire a law firm. Or I guess they can work it internally. They've got four choices before them. And we try to be the tool to help them. If they want to go external to one of those third parties, debt sales agency or legal, they're in one platform.
Adam Parks (10:58)
Well, they should always be attacking at least one or more of those because if you look back at the old Bill Bartman days when the banks had limited themselves to only debt sales, they were overly reliant that cash flow through one organization. And when that organization didn't exist anymore, they had to go rebuild all of their recovery network. So I would think that a large creditor should be looking quite closely at having all four of those channels running simultaneously.
Adam Parks (11:25)
and you should be able to pull your levers and move your volume back and forth and champion challenge. But if you're just collecting internally, you're not comparing yourself to a third party. I've always found that banks are really good at like underwriting and performing loan servicing. But when it comes to debt collection, like it really does require specialized strategies and services. Now look, I think the line has become blurred because anybody can send out a text message, anybody can send out an email these days.
Dave Pauken (11:28)
Yeah.
Yeah.
Adam Parks (11:51)
but the differentiator is in the strategies, it's in the content and in the strategies, it's not in the ability to send a text message or email. So being able to specialize portfolio volume in a way in which it's being worked by those with the highest degree of certainty in collecting it, mean, it feels like it's a natural fit for even a mid-size creditor.
Dave Pauken (11:59)
Right.
absolutely. A mid-sized creditor, even smaller credit unions, any organization that's got past due debt, they have a responsibility to try to collect it. It's all part of our credit system here in the US. And they need to have tools to be able to do it efficiently and effectively.
Adam Parks (12:32)
And if they can't collect it, what are the options they can raise interest rates or they can make credit less available. They've only got two levers to pull.
Dave Pauken (12:38)
That's it. And neither of those are good options. Yeah. Yeah, and you're...
Adam Parks (12:41)
No, not for the consumer or for the
or for the investor or for the bank.
Dave Pauken (12:45)
Yeah, your point on Champion Challenger, that's historically been hard to do. It's been sort of a manual data accumulation effort to try to compare one strategy to another. But in the day and age that we live in today with some of the technologies that exist out there through companies like Databricks and Click and come under some really modern technologies that are available to companies like Convoke.
⁓ We can now take data much more easily from a third party and present it to a credit issuer so they can do this champion challenger and then make better decisions on how to pursue collection of a given consumer debt.
Adam Parks (13:26)
yeah, being able to compare apples to apples workloads and I'm often surprised by how little people really understand A-B testing and limiting to a single variable and being able to measure and test on like one particular thing. I think sometimes we get so excited that we're running an experiment that we tried to include too many variables and it really dilutes the end result or at least the measurement and conclusion based on the end result of the experiment.
Dave Pauken (13:40)
Yeah.
Yeah.
Adam Parks (13:55)
That's always been a challenge in our space.
Dave Pauken (13:57)
Yeah, and what I'm excited about for the future is some of these tools that you mentioned, sending emails and texts and all of those are available. How can we use that data and the consumer's behavior in response to that to make better predictions about how to pursue collecting debt? we predict, you should email this consumer, you should text this one, here's the time of day you should do that. And maybe it's for this
this particular asset class, but on another one it's something else. And all the data I think will guide us there. And that's the really exciting part about the future here.
Adam Parks (14:28)
I think the fourth dimension of that is the content. think, you know, dealing with what to send them, or really like, is it a text message and email, the cadence of things, all that to me feels like 3D chess. I think the fourth dimension is when we have to start including in that calculation, what content are we sending them? So not only are we trying to pinpoint what, where, when, who, how, but we're now also trying to figure out what
Dave Pauken (14:48)
and
Adam Parks (14:59)
What's the message that we're communicating within that individual communication? And as an industry, we've been very focused on the channels themselves and not so much on how are we going to test and perfect that content. But that content, I believe, will be one of those major differentiators between organizations in the coming three to five years. Just like I would say to people, and you hear me say it fairly often, that those organizations that don't start
Dave Pauken (15:11)
Yeah.
Adam Parks (15:24)
deploying some machine learning and starting to test artificial intelligence a year from now, maybe two years from now, it's going to be five years to never in terms of opportunity to catch up again. So staying on that wave and not letting it crash over you, I think is really solid advice for the whole space.
Dave Pauken (15:28)
Yeah.
Yeah.
It's a
really important point, Adam. I was with a group of technology CEOs last night here in Washington and with some private equity investors along in the meeting. And what they're seeing now, it's somewhat pattern matched to when the internet came in the late 90s. Remember all the excitement about the internet company? Well, there's similar excitement about native AI companies.
Dave Pauken (16:05)
So you've got all kinds of native AI companies being created, some of them in our industry that are going to be very innovative. So that's one track. Some of those guys will be successful, some others. Then there's companies like Convoke where we were not traditionally native AI, but we have to move in that direction, which is your point. Like we have to do that. And so there are so many of us in the industry that are been around five, 10, 15 years. We now have a job to do.
to transform ourselves.
Adam Parks (16:34)
The larger the data
set, the more that's required. Right? The larger the data set, the harder it is to recognize patterns, but the easier it is for the machine to do it. So the more that we can start to look at these large data sets and unleash some learning capabilities there to identify at least breadcrumbs towards the insights that we're looking for will make a big difference.
Dave Pauken (16:37)
Yeah, you know.
Yeah. And look, our job at Convoke is to try to do this in a way that's safe because PII is involved, efficient, and actually better than a credit issuer can do on their own. The credit issuers are spending a lot of money on technologies and innovation. And as you pointed out earlier, they're offered most of that time and energy to spend on either underwriting or servicing, maybe less on the back end.
Dave Pauken (17:20)
So there's opportunities for companies in our space, in the arms space, to bring real tools to the credit issuers.
Adam Parks (17:29)
Agreed.
There's a lot of opportunity with the credit issuers right now, as you start thinking about what the next five years looks like, we're going to go through this the great AI race over the next probably two years, maybe three. But what do you think the next five years starts to look like as we think about how rapid the world is changing today?
Dave Pauken (17:41)
Yeah.
Well, certainly it's along the theme that we've been talking about where since you have these datasets and they're large datasets, what AI machine learning tools can you bring to that data to help make better decisions so performance goes up, productivity goes up, and compliance goes up? And I think also bringing in external data that might be useful in that. So I think that will be a big part of the next five years.
Then the other element I think is it's important to spend time tying into some of the credit issuer systems. They're now, many more of them are digitally engaging. They're looking at, you have data from pre-charge off behavior. I think you can bring all of that into the mix as well. And I think these tools will help lower
headcount on collections, audit costs, because it can be done by a machine. can just leave aside for the second the issue of what's happening to the labor force. That's a real thing that affects real people that we need to be sensitive to. But the reality is some of this technology is just going to make cost go down, accuracy go up, efficiency climb, and collect more money.
Adam Parks (19:03)
It's the diversification opportunity for collection agencies and looking at customer service and some of the other things that do require that more labor intensive, but then you've always got that overflow skill set as a collection agency. You're trying to build this like culture and team around you that has a particular career craft, let's call it. And it's hard because as you start looking at the account to collector ratios are going up, the profitability per, you know, per collector is also going up.
Dave Pauken (19:21)
Yeah.
Yeah.
Adam Parks (19:32)
Now you have to figure out how do you start to diversify and use that workforce in new and interesting ways to provide additional value, because it is a craft and it's a valuable craft that I don't think will be replaced by AI anytime soon, although we may start to see more of the administrative things. It's an opportunity to start to grow the minds of the team around you and starting to move in that direction, which is I've started deploying artificial intelligence across my organizations is always my focal point.
Dave Pauken (19:40)
ways.
Adam Parks (20:01)
or the people around me and teach them how to use the tools. ⁓
Dave Pauken (20:03)
Yeah. Yeah.
Well, look, even if, even if you look over the history of Convoke over the last 15 years, there used to be a lot more human involvement in delivery of media. Now we're moving millions and millions of documents around and no human ever touches it. Right. That this analogy will continue into this AI machine learning world. And I think
Adam Parks (20:14)
True statement.
those data connections.
Dave Pauken (20:27)
It was all those data connections. somebody was telling me recently about some interesting technologies where if I've got a foreign accent, there's technology that'll smooth that out so I sound like I'm from Kansas. What a very great idea, right? We'll just have to be careful on all the bets that we make as managing a software company. It's how do I allocate capital on where I want to...
Dave Pauken (20:51)
spend my R &D efforts. Because there's this element where I, you ask me what's the future like? Well, I can maybe say broadly, but do I really know? Sometimes it's hard to know. So I have to be, yeah.
Adam Parks (20:52)
It's real hard to know right now.
It's, it's becoming more difficult to predict because of the speed in which we're dealing with challenges. I think a lot of it I've identified and I've written an article about six use cases of artificial intelligence in debt collection. That's not to say that that's specific to debt collection, not including you know, HR and accounting and all of these other places where you're going to start to see that type of technology deployed.
Dave Pauken (21:19)
Yeah.
Yeah.
Adam Parks (21:25)
But pretty much everybody keeps talking to me about their use cases internally and I keep putting them into those same six buckets. And understanding that structured data that, I call it scoring and kind of treatment, but it's really talking about workflows and workflow engineering, I think is really where we're gonna start to see that evolution over the next five years. It's gonna be about how are we going to move these things through processes and how can we smooth out those processes and human manage the exceptions.
Dave Pauken (21:37)
Yeah.
Adam Parks (21:52)
until we can learn how to automate those two. But that process of continuing to manually manage those exceptions, I think goes on for a long time. And when you talk about AI from a compliance standpoint, for example, being able to listen to 100 % of calls instead of 5 % of calls, and then a live person listens to the 5 % that are actual exceptions is a perfect example of using artificial intelligence and the technology at hand, the right way to enhance and to refine not to replace
Dave Pauken (21:55)
Yeah.
Yeah.
Adam Parks (22:21)
because we're not gonna replace all the people, but we are gonna be able to refine the processes and have the people's minds focused on those areas in which they add the most value.
Dave Pauken (22:21)
Yeah.
Yeah. And look, on some of those examples you just rattled off, our role in it is to get that information from the agency and law firm, and we get it every day, and present it in this business intelligence model that's easy for a credit issuer to digest and use. That's...
Adam Parks (22:46)
Well, data is
not worth anything unless you can visualize it. If you want to show me reports that are just big, long spreadsheets full of numbers, it doesn't actually help me looking at a dashboard, being able to visualize the information behind it and quickly identify the anomalies that require my attention. Like that's what I'm looking for.
Dave Pauken (22:58)
Yeah.
Yeah, yeah. I mean, I'm excited to see the day when somebody's typing in a natural language inquiry, hey, compare this particular credit card from this lawyer to this lawyer on this vintage on the first 30 days. Just be able to type that in and get a presentation, right?
Adam Parks (23:22)
I spent the
last 20 years compiling a database just like that, but I can't query it in that way, right? I'd stolen the world of reports and trying to understand, but I agree wholeheartedly with you that I believe from a data analytics standpoint and as more structured data comes together, those things will become more and more possible in the near future.
Dave Pauken (23:40)
Yeah. I guess the other thing that I would add is we work hard at them to stay focused. We are particularly focused on the needs of a credit issuer. We've often been asked, could a debt buyer or an agency or law firm use some of our services? And it just hasn't been designed for that. And we, at least at this point in our history, we want to stay focused on the credit issuer.
Dave Pauken (24:06)
There's plenty of other great technology companies that can serve others. So we do try not to be all things to all people and stay in our lane, which we think has been helpful to us and our customers over the years.
Adam Parks (24:17)
I respect that. I definitely respect that. Being able to focus like that and to grow your success in a particular channel and not be distracted by taking on every challenge or every opportunity that's presented, I can definitely appreciate and respect that focus.
Dave Pauken (24:33)
Yeah, over the years, people say, hey, OK, I've captured the audio call so somebody can listen to it. Can you build technology to listen to that technology quantum? Actually, I couldn't, because there's audio listening technology where people spend $100 million building it. I could never create anything that good. So let's go rent that from them. So we try to do things that other people actually can't do. Yeah. Yeah.
Adam Parks (24:48)
Yeah.
I like that. I like that
a lot. Dave, I gotta say, this has been an inspiring conversation. I really do appreciate you taking the time and energy to come on here and share your insights. I've learned a lot about Convoke and your storyline and kind of how things have come together.
additional questions you'd like to ask Dave or myself, you can leave those in the comments on LinkedIn and YouTube and we'll be responding to those. Or if you have additional topics you'd like to see us discuss, you can leave those in the comments below as well. And hopefully I can get Dave back at least one more time to help me continue to create great content for a great industry. But until next time everyone, really do appreciate your time and attention. We'll see you all again soon.
