Here's how Facebook describes the program:
After a successful pilot with Facebook Diverse Suppliers, we are expanding the Facebook Invoice Fast Track program. Beginning October 1, eligible US-based small businesses will have the opportunity to get cash immediately for the goods and services they’ve invoiced their customers, instead of waiting the 60 to 120 day period it normally takes to get paid. We will be funding $100 million in invoices on an ongoing basis.
The social media giant points to the impact of the pandemic on small businesses as the impetus behind the program, citing their own State of the Small Business report, which showed an increase in small businesses closing through 2020 and 2021 - especially those owned by “women and under-represented communities.” The program aims to pay small businesses for their invoices (less 1% of the invoice value, paid to Facebook). However, the program doesn’t detail how Facebook intends to collect on those invoices, and doesn’t indicate what happens when the invoices are not paid.
This development could have some serious implications for the third party debt collection industry, as well as active and passive debt buyers.
Debt collectors cannot expect to keep up with the tech giant
You know when a really good receiver from a really good football team gets wide open for a catch and there aren’t any players from the other team even in the TV shot? Like, it’s just completely wide open, all the way to the endzone? I initially thought that was a good analogy for Facebook potentially entering this space. It’s not, though, because most companies in the debt collection industry don’t even belong on the same football field as Facebook. When it comes to access to technology, including the ability to finance innovation, this is a Division I school vs. a junior college.
The ARM industry is relatively slow to adapt to new technology. And while Regulation F will seemingly allow, and even press, the industry to catch up, there’s no way a company specializing in third party debt collection will ever be able to compete with Facebook's technological capabilities.
Will we have to compete with Facebook?
The eligibility requirements for the Invoice Fast Track program include:
- A minimum invoice value of $1,000
- An investment grade rating
- Company must be majority-owned, operated, and controlled by racial or ethnic minorities, women, U.S. military veterans, LBGTQ+ people, or individuals with disabilities
A note on the last eligibility requirement: companies must be certified by one of Facebook’s approved partner organizations.
Obviously, most debt collectors and debt buyers don’t require this level of eligibility to collect. Given the track record of Facebook’s expansion from a college-based social media platform (remember when you had to have a .edu email address to make an account?) to a technology giant that not only allows personal engagement with others, but also offers a marketplace for buying and selling, and one-on-one messaging (which will be allowed in collections starting Nov 30, 2021since Reg F allows for social media contact).
It would not be surprising to me if Facebook expands beyond their initial eligibility requirements and begins working with other, larger banks and credit card companies.
What does this really mean for the ARM industry? I think Facebook’s program could challenge the ARM industry in a number of ways. And some of those challenges will arrive sooner than others. Here are three thoughts:
1. Collections firms should stop thinking like a traditional call center / third party debt collection company and start thinking more like a technology business.
Evaluate what it will take to get you beyond traditional calling and snail-mail. Facebook’s program shouldn’t be the only driving force here; customer behavior is changing and the regulations are going to make it difficult to use outbound calling as your single outreach method.
2. Watch the industry rep if Facebook jumps in.
The public’s trust in Facebook is tenuous at best. Public opinion of the debt collection industry is similarly fraught. Will Facebook’s entry into invoice collections make that situation worse on both ends? My instinct is yes.
3. Where Facebook goes, regulators will follow.
Even more than public trust in Facebook, the government scrutinizes its every move (to varied success). Of course, the third-party debt collection industry also faces its fair share of government oversight. Facebook entering that space can only increase the level of regulation and oversight enjoyed by the ARM industry.
It remains to be seen whether Facebook will see this as a lucrative investment, and if so, how it will expand. We don’t know for sure that this will have a broad, or even narrow, effect on the ARM industry. Don’t ring any alarm bells, yet, but it doesn’t hurt to consider how that future might look.
Erin Kerr is the Director of Content at insideARM; the chair of iA Strategy & Tech, a digital resource for collections strategy executives; and the Executive Director of the iA Innovation Council, a membership group for collections / receivables executives interested in solving major industry challenges through tech solutions and collaboration. She is a seasoned receivables management professional, with recent experience in digital strategy and a passion for crafting digital solutions for a better customer experience.