There is something beautiful about acknowledging the death of a thing. Not because decline is pretty, but because you only get to have that opinion after you've earned it. You've spent the time, had the conversations, and been blessed with enough information to hold a real view on a product, an industry, or a company. That's where I am with debt collection.

I've spent countless hours at this point learning the ins and outs of this space. First party, third party, debt buyers, the major players, and even a few of the moms and pops who built meaningful lifestyle businesses collecting debt and still run them today.

Start with the basics. Debt collection is exactly what it sounds like, collecting on money someone owes. The most familiar version today is checking out on a website and choosing to pay in 3 monthly installments. You never end up paying the last 2, and eventually that balance gets sent to collections, whether that's first party or third party.

First party is when the company you owe, or someone acting on their behalf, tries to collect the money you owe the company that lent it to you.

Third party is when that debt gets sold and is no longer owned by the original lender. Whoever bought it will often hire third party agencies to work the accounts and recover whatever they can.

Now, in the era of software and roll-ups, the pitch for a debt collection roll-up using software to gut operating costs sounds super sexy right? You're looking at an industry where 40%+ of costs are labor, that only in the last 5 years started using omnichannel, text, and other modern solutions, run by moms and pops nationwide with no true conglomerate winner owning even 40% of the market. Anyone going through YC is looking at this fact pattern and saying to themselves, wow, is this an opportunity.

So what does AI-enabled collections actually mean? The idea sounds great. If these operations truly are mom and pop shops doing a few million a year with over 40% of their cost sitting in labor, applying AI to back office workflows, and eventually to collections themselves, is a huge unlock and could more than double profits. The problems show up fast though. You need approval from whoever owns the debt (unless you were also the buyer), and third party collections sit under some of the strictest consumer regulation there is. The FDCPA, Reg F, the CFPB, and a patchwork of state licensing requirements all apply to third party in ways they simply don't to first party, and that makes third party collections harder and more expensive by design.

After speaking with executives at every level, seasoned experts in collections, and the software providers selling into them, I keep backcasting to one question. Why does anyone use third party in the first place? First party is much more favorable on every dimension. But for most businesses, the easiest path to quick liquidity is selling the debt and getting it off their hands. The trade has always been recovery for speed and convenience.

But what if working those accounts first party had no upfront cost, and you didn't need a team of 50 people calling, texting, and emailing day in and day out?

So what is the future?

A platform that uses agents to run omnichannel strategies across calls, texts, and email as first party collections software. It isn't burdened by the same third party regulations, it puts more dollars back into the pockets of lenders, and it enables first party collections for companies that otherwise never would have been able to work that debt at all. Most importantly, it pushes the first time a third party agency ever touches an account out months or even years, after first party has already pounded the life out of it. Say a year or 2 instead of the 4 months it used to take.

The paper these agencies work becomes close to worthless, and the reliable first party servicing deals some of these shops depend on, the most stable revenue they have, get stripped away too.

Third party doesn't get disrupted by a better third party. It gets starved by a better first party.