About this report
This report focuses on the UK consumer debt purchase and debt collection markets. Debt collection involves the collection of debts on behalf of the original debtor as an outsourced business process while debt purchase involves buying the actual debts and the right to collect them.
Our research identifies that there is considerable overlap between the provision of both services. Many of the larger debt collection agencies have purchased portfolios of debt in recent years while all the leading debt purchasers now have their own debt collection platforms. Indeed, many have carried out debt collection on a contingent basis in particular during the period from 2008-10 when the debt purchase market was impacted by the credit crunch.
The report quantifies the sizes of each segment and their respective historical and forecast growth rates while reviewing key factors behind these figures and exploring drivers of growth and profitability.
We also report on and analyse the drivers of growth – in particular relevant economic indicators such as total consumer debt, unemployment levels, debt write-off rates, levels of personal insolvencies – and more specific factors including recovery rates, commission levels, the attitudes of consumer creditors to the concept of debt sale and the discount to face value typically paid for debt.
The leading debt purchasers and debt collections agencies are profiled and their performance is compared.
What does it contain?
– Quantification of market size and historical growth rate
– Summary of market trends
– Analysis and profiles of leading debt collection agencies and debt purchasers
– Our forecasts for market and driver growth
– Insights from interviews with a range of industry experts
Who Is it intended for?
Debt collections agencies and debt purchasers, sellers and outsourcers of debt, investors in the industry, banks, analysts, consultants, regulators and other parties with interests in the sector.
What are the sources and methodology?
This report is based on
– Publicly available data including company annual reports, websites, press releases and government statistics
– Interviews with a range of senior-level contacts in the market
– In-depth analysis of the macroeconomic environment and other relevant market drivers
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions
Main changes from our previous report in this area
– Profiles updated to include acquisitions, latest financial results and important company news.
– Analysis and description of the market updated to reflect recent trends such as increasing barriers to entry as a result of greater regulation and increased adoption of pre-approved panels of purchasers and collection agencies
– Financial information and market drivers updated
– Forecast models rebuilt to reflect new information and changes in the market context
– Comments from interviews included to illustrate key points
Summary
Market context
Debt purchase and debt collection are significant UK industries with their services being used ever more widely.
– In the financial sector, their use has helped banks not only to improve recoveries but also to meet stricter capital ratio requirements
– The services are also increasingly being used in other areas where there are significant consumer debts, such as telecoms and utilities, as well as in areas of the public sector.
The fortunes of the industry have varied significantly in response to the economic environment.
– Having been boosted by the increase in consumer borrowing over the last 15 years, debt collection agencies have more recently been hampered by a challenging environment since the downturn.
– Debt purchase has returned to growth following the credit crunch with both volumes purchased and prices paid increasing beyond pre-crisis levels in the last few years – although the market underperformed most expectations in 2015.
With the FCA assuming responsibility for consumer credit, regulation has become more strict, imposing costs but also improving industry structure.
– Debt collection agencies must now do far more work to ensure that debtors are able to make repayments without causing serious financial hardship.
– This has imposed costs on the industry which potentially threatens the viability of the contingent collection model. However, it has been helpful for the larger debt purchase groups, who have the scale to invest in developing and implementing compliant processes, and who can expect to benefit from increased barriers to entry created by the new regulation.
As the UK market has inevitably matured, several of the leading players have inevitably looked to other areas to obtain growth. This has included:
– Other European markets
– New asset classes such as utility and telecom debts and secured loans
Competitive landscape
Provision remains relatively fragmented with several hundred collections agencies and over 60 buyers believed to have purchased debt portfolios. The largest companies include the following:
– Primarily contingent debt collection: Independent players such as Wescot and Moorcroft as well as the large BPO providers such as Capita (Akinika) and arvato (BCW).
– Primarily debt purchasers: Cabot, Lowell, Arrow Global, Link, Max Recovery and 1st Credit.
Leading players continue to make better use of data to improve their collection success and to enable them to offer higher prices to improve their success in purchasing portfolios.
Focusing on excellent collections processes to minimise risk of bad publicity for the original creditor is also necessary to be win a place on the panels of the main sellers.
M&A activity has continued with both market consolidation by the leading UK players, and entrants from Europe and North America, often making acquisitions in order to gain access to key panels.
Market consolidation has enabled best practices to be rolled out across further portfolios, leading to increased returns.
Outlook
We expect to see further market growth given the:
– Number of well-capitalised purchasers in the market
– Increase in consumer confidence and hence borrowing levels and improvement in the collections environment which have both resulted from a stronger economy
– Desire on the part of the major sellers to continue their selling activity and potentially increase it.
While all the major purchasers now have a collections platform and hence have no need to acquire one, we believe that further market consolidation is nevertheless still likely, given the synergies which consolidators have obtained.
Given pressure on margins, we expect Debt Collection Agencies to seek alternatives to the contingent remuneration model which has been almost ubiquitous in recent years.
Our forecast, which analyses historical relationships between key drivers and variables and takes into account views of those in the market, sets out how we expect the market to develop in this context.