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 several debt purchasers have carried out debt collection on a contingent basis, in particular during the period from 2008-10 when the amount of debt available to purchase fell significantly.
The report quantifies the sizes of each market and their respective historical 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, recovery rates, commission levels, debt price levels – and more specific factors including levels of personal insolvencies, the attitudes of consumer creditors to the concept of debt sale and the discount to face value typically paid for debt.
Leading debt purchasers and collections agencies are profiled and their performance is compared
It is intended for debt purchasers themselves as well as investors, banks, analysts, consultants, regulators and other parties with interests in the sector.
What are the sources and methodology?
This report is based on:
– Interviews with senior-level contacts in the market
– Company information including annual reports, websites and press releases
– Economic and financial data from Bank of England and government sources
This information has been reviewed and analysed to produce our findings. These are presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions
Summary
Market context
Debt purchase and debt collection are increasingly important 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 capital ratio requirements
– They are established in the private sector with the public sector now seen to be a key area of growth.
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 decade, debt collection agencies have more recently been hampered by the worse collections environment experienced during the prolonged downturn in the economy.
– Debt purchase was hit hard by the credit crunch in 2008, with both sellers of portfolios and the capital to buy them being in short supply. The market has now returned to growth with both volumes purchased and prices paid increasing strongly in the last couple of years.
There has been significant acquisition activity, from private equity and from corporate acquirers looking to diversify internationally or add to their range of service offerings.
– There have also been substantial fundraising exercises via high-yield bond issues.
– Further such transactions are likely and there is also industry expectation that one or more of the leading debt purchase players might seek a full stock market listing in the near future.
Competitive landscape
There is significant overlap between the two segments. Many of the larger debt collection agencies have also purchased portfolios of debts in recent years while several debt purchasers have carried out debt collection on a contingent basis.
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, CapQuest, Marlin, Link, Max Recovery and 1st Credit.
Outlook
Future overall growth appears likely given the:
– Success of several large purchasers in raising additional capital
– Strong recent levels of debt sales
However, uncertainty remains with some in the industry expecting a price correction in the near future and the risk that the slower economic recovery with continued high unemployment leads to:
– Consumers reducing their borrowing levels further, resulting in less debt for sale
– A continued poor collection environment
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.