Description

About UK Consumer Debt Collection and Debt Purchase Market Insight Report 2019

What is the focus of the report?

This report covers 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
– Debt purchase involves buying the actual debts and the right to collect them.

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 rates since 2013 (or earlier)
– Summary of market trends
– Analysis and profiles of leading debt collection agencies and debt purchasers
– Our forecasts for market and driver growth (2019-23)
– Insights from interviews with a range of industry experts

Market context

The debts relate mainly to consumer credit, but also include other consumer debt.
– The market definition excludes residential first-charge mortgages and student loans.
– Debt collection services are 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 such as council tax. Debt purchase remains focused on consumer credit.

Lenders or other creditors have a choice whether to us a collection agency to work on debts on their own balance sheets, or to sell the debt to a firm that will then collect on its own behalf.

Having been boosted by the increase in consumer borrowing over the last 15 years, the market has more recently shown signs of maturing with pure debt collection revenues and debt sale levels remaining flat – although past sales ensure that top line market growth continues.

Since the FCA assumed responsibility for consumer credit in 2014, regulation has had a significant impact on the market, leading to substantial changes to the industry structure.
– Debt collection procedures for consumer credit are now tightly regulated requiring significant investment in systems and training.
– Many firms have left the market and others have consolidated.
– This has imposed costs on the industry but has been helpful for the larger debt purchase groups in particular, as they have the scale to invest in developing and implementing compliant processes and can therefore expect to benefit from the increased barriers to entry created by new regulation.
– Alongside these direct impacts on debt collection, FCA regulation has led to a decline in high cost short term lending (including payday lending) where debt collection services and debt sales have been regularly used.

As the need for investment in collection processes increases, there has been a shift from contingent collection models (where agencies are rewarded based on amounts collected) to longer-term partnership or outsourcing models.

Competitive landscape

The largest debt collection-only firms include Arvato, Capita and Wescot (acquired by Cabot in November 2017).
– Although many firms have left the market in recent years, debt collection remains relatively unconcentrated with many small firms collecting mainly commercial debts rather than consumer credit.

Leading debt purchasers include Cabot, Lowell, Arrow Global, Link, PRA and IDEM Capital.
– 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.
– The planned floatation of Cabot in 2017, which was ultimately cancelled, together with short selling of listed debt purchasers’ stock appears to suggest uncertainty in the market on debt purchasers’ models and how firms in this sector report their results and position.

Outlook

Despite the recent slight decline in the market, we expect to see further market growth given the:
– Number of purchasers in the market backed by private equity or other investment firms, with several specialist funds targeting investment in this area.
– Increased incentives for credit providers to remove non-performing loans from their balance sheets due to new accounting and prudential regulation.
– Greater complexity of consumer credit collections to meet FCA conduct regulation and tightened rules from the utility regulators, which encourages firms to pass debts to specialists to handle.
– Growing confidence in the collection arrangements that the firms in the sector, helping potential sellers our outsourcers to have confidence that the arrangements will not lead to regulatory or reputational risk.

We believe that some further market consolidation is still likely, given the synergies available from extending use of more sophisticated collection systems and teams.

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.

Who Is the report intended for?

– Debt collections agencies and debt purchasers,
– Sellers and outsourcers of debt,
– Investors in the industry,
– Market analysts and consultants
– Regulators
– 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

Which companies are covered in the debt collection / debt purchase market report?

The report includes profiles of the following companies:
– Arvato
– Capita
– Moorcroft
– Wescot
– Intrum
– Arrow Global
– Cabot
– Hoist Finance UK
– Idem Capital
– Link Financial
– GFKL Lowell
– Max Recovery
– Lantern
– PRA Group