UK Consumer Debt Collection and Debt Purchase Market Insight Report 2021

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Published: Oct 2021
Pages: 64
Format: PDF

 

 

 

 

 

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Description

About UK Consumer Debt Collection and Debt Purchase Market Insight Report 2021

 

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.
Debt purchase market

The report quantifies the sizes of each segment (as measured by total collections) 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 (2021-25)
– 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 primarily focused on consumer credit although it is also used to some extent for other areas.

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.

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.

The market was boosted by the increase in consumer borrowing over the last decade. We believe that total collections reached £2.1bn in 2019. However, COVID lockdowns had a significant impact with much collection activity, as well as spot sales, being scaled back or put on hold. This led to a reduction in overall collections in 2020 of over 25%.

 

Competitive landscape

Following consolidation, seven large groups account for a very large share of the overall market. These include Cabot, PRA, Lowell and Hoist.
– 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.
– Most are now part of European-wide groups, looking for higher growth outside the relatively mature UK market

A key focus for all is investment in technology to reduce operating costs, improve service levels and demonstrate compliance with regulations.

Moorcroft is the largest of the pure debt collection agencies which do not purchase debts remaining independent. Several others have been acquired by debt purchase groups with a long tail of smaller collectors, many focusing on specific niches, still operating.

 

Outlook

The market has started to recover from the COVID lockdowns with most sales and collection activity now having been resumed.

Assuming there are no further lockdowns we expect to see this recovery continue over the next few years given the underlying positive fundamentals, such as:
– 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.

 

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:
– Arrow Global
– Cabot Credit Management
– Hoist Finance UK
– Intrum UK
– Lantern
– Link Financial
– Lowell
– Moorcroft Debt Recovery
– Paragon (Idem Capital)
– PRA Group UK

UK Consumer Debt Collection and Debt Purchase: Market Insight Report 2021
About this report 2
Summary 3
About Apex Insight 5

Contents             7

List of figures     9

About the market            10

Market definitions           10

Market background        11

Adjacent markets            13

Market attractiveness and barriers to entry          15

Value drivers      16

Debt collection processes            17

Regulation          18

How is debt purchase and collection reported?  20

Market size and growth 21

Methodology    21

Debt purchase & debt collection market size        23

The market for the sale of consumer debt             25

Book value of purchased debt    27

Appetite of investors and availability of capital    27

Market drivers  29

Economic performance 29

Consumer borrowing     30

Attitude of creditors       34

Improvements in systems and data usage             36

Growth in outsourcing and debt sale by the public sector               36

Increased interest from utilities and telecoms providers 37

Competitive landscape  38

Profiles of leading debt purchasers:         41

Arrow Global      41

Cabot Credit Management          42

Hoist Finance UK              43

Intrum UK           44

Lantern 45

Link Financial      46

Lowell   47

Moorcroft Debt Recovery             48

Paragon (Idem Capital)  49

PRA Group UK   50

Other UK debt purchase and collection companies (1)     51

Other UK debt purchase and collection companies (2)     52

Other UK debt purchase and collection companies (3)     53

Forecasts             54

Approach            54

Key driver forecasts        54

Debt sale market forecasts          56

Collections environment              59

Market forecast 62

Risks to the forecast       63

 

List of figures

UK Debt Purchase and Collection market structure            10

Alternative measures of debt purchase activity   22

UK consumer debt purchase and collection market size / £m        23

UK gross lending and repayments by month / £bn             24

Face value of debt sold / £bn      25

Average price paid for debt purchased / pence per £ face value   25

Total amount spent on debt / £m              26

UK real GDP / % annual changes 29

UK outstanding unsecured consumer credit / £bn              30

HCSTC new lending value (£ billion)          30

Historical number of unemployed and underemployed / m           31

UK average earnings and inflation / % annual change       32

UK household debt to income ratio          32

Historical number of new personal insolvencies per year / '000    33

UK bank & building society unsecured consumer debt written off / £bn, % of total unsecured consumer debt        35

Rates of unemployment and bank & building society unsecured consumer debt write-off / %        35

Book value of purchased debts held by leading UK groups at end 2020 / £m, % of total     38

Debt collectors used by consumer credit lenders               39

Debt collectors used by type of credit     40

UK real GDP / annual changes    54

UK historical & forecast unsecured household debt  /  £bn             55

Historical & forecast rates of unemployment and bank & building society unsecured consumer debt write-off / %                57

Historical & forecast UK bank & building society unsecured consumer debt written off / £bn (LHS), % of total unsecured consumer debt (RHS)               57

Historical & forecast average price paid for debt purchased / pence per £ face value          58

Historical & forecast total amount spent on debt / £m     58

Unemployment and underemployment / m         59

Number of people in employment / m    60

UK consumer debt purchase and collection historical & forecast market size / £m               62


    To talk to us directly about the report, or to ask a specific question, please telephone: +44 20 7100 7239


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