UK Consumer Debt Collection and Debt Purchase Market Insight Report 2019

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Published: Feb 2019
Pages: 70
Format: PDF

 

 

 

 

 

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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.
Debt purchase market

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

UK Consumer Debt Collection and Debt Purchase: Market Insight Report 2019
About this report 2
Summary 3
About Apex Insight 5

About the market 10
Market definitions 10
Market background 11
Adjacent markets 13
Market attractiveness and barriers to entry 14
Value drivers 15
Regulation 16

Market size and growth 18
Methodology 18
Market size 19
Debt sale market 20
Appetite of investors and availability of capital 22
Credit Services Association data 23
Revenue trends 24
Industry profitability 25

Market drivers 26
Economic performance 26
Consumer borrowing 27
Ability to service borrowing 28
Attitude of creditors 31

Improvements in systems and data usage 33
Growth in outsourcing by the public sector 33
Increased interest from other asset classes 34

Competitive landscape 35
Profiles of leading debt collectors 40
Arvato 40
Capita plc 41
Moorcroft 42
Wescot 43

Profiles of leading debt purchasers 44
Intrum 44
Arrow Global 45
Cabot 47
Hoist Finance UK 49
Idem Capital 50
Link Financial 51
GFKL Lowell 53
Max Recovery 55
Lantern 56
PRA Group 57

Forecasts 58
Approach 58
Key driver forecasts 58
Debt sale market forecasts 60
Collections environment 63
Market forecast 65
Risks to the forecast 66

List of figures

Scope of market 11
Alternative measures of debt purchase activity 22
UK consumer debt purchase and collection market size / £m 23
Total debt (face value) held for collection by CSA members / £bn 26
Total debt collected by CSA members / £m 27
Combined revenue of leading debt purchasers & collections agencies / £m 27
Combined pre-tax margins of leading debt purchasers and collection agencies / % 28
UK real GDP / % annual changes 29
UK outstanding unsecured consumer credit / £bn 30
HCSTC lending market size by new business / £bn 30
Historical number of unemployed and underemployed / m 31
UK median earnings (current prices) and real household disposable income annual growth rates / % 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 / % 36
Leading UK debt purchasers and DCAs by latest revenue / £ m 38
Revenue growth rates of leading debt purchasers and DCAs / % CAGR 39
Revenue per employee / £000 39
120-month ERCs for leading debt purchasers / £m 41
Arvato Regulatory Services Ltd. summary financials 42
Capita debt collection summary financials 43
Moorcroft Group PLC summary financials 44
Wescot Topco Ltd. summary financials 45
Intrum UK Finance Limited summary financials 46
Arrow Global Group plc 48
Cabot Credit Management PLC summary financials 50
Hoist UK summary financials 52
Idem Capital Holdings Limited summary financials 54
Link Financial summary financials 55
Metis Bidco Limited summary financials 57
Max Recovery Limited summary financials 59
Lantern Debt Recovery Services Limited summary financials 60
PRA Group (UK) Ltd. summary financials 61
UK real GDP / annual changes 62
UK historical & forecast unsecured household debt / £bn 63
Historical & forecast rates of unemployment and bank & building society unsecured consumer debt write-off / % 65
Historical & forecast UK bank & building society unsecured consumer debt written off / £bn (LHS), % of total unsecured consumer debt (RHS) 65
Unemployment and underemployment / m 66
Number of people in employment / m 66
UK median earnings (current prices) and real household disposable income annual growth rates / % annual change 67
UK consumer debt purchase and collection historical & forecast market size / £m 68

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