UK Consumer Credit Debt Collection and Debt Purchase Market Insight Report 2020

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Published: Apr 2020
Pages: 43 (+70)
Format: PDF

 

 

 

 

 

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About UK Consumer Credit Debt Collection and Debt Purchase Market Insight Report 2020

What is this report about?

This report focuses on the UK consumer credit debt collection and debt purchase markets.

Consumer credit debt collection involves the recovery of money that is owned by individuals to lenders, including providers of:
– General unsecured loans
– Guarantor finance
– High Cost Short Term Credit
– Home-collected credit
– Motor finance
– Credit card and other revolving loans
– Pawnbroking
– Logbook loans
– Rent-to-own

The scope includes products regulated by the Consumer Credit Act. It therefore excludes student loans and mortgages.

Debt purchase in this sector involves firms buying portfolios of consumer credit loans from banks or other finance companies.
– The debt purchasers buy the rights to the future revenue from loans, including the right to collect them.
– The purchaser may collect the debts itself (often through a separate group business) or may appoint a third-party debt collection firm to act on its behalf.

The report quantifies the market size and trends while reviewing key factors behind these figures and exploring drivers of growth and profitability.

The leading consumer credit debt purchasers and debt collections agencies are profiled, and their performance is compared.
– Where firms carry out wider debt activities (e.g. dealing with utility bills rather than consumer credit debt) we measure only their consumer credit activities.
– This is done, where possible, by reference to the Group entities that are specifically authorised by the Financial Conduct Authority for this activity.
– We make estimates where necessary and provide details of these).

What does it include?

Quantification of market size in 2019
Historical growth since 2016.
Our thoughts on the outlook for the market (to be revised once the impact of the COVID-19 pandemic is clear)
Summary of market trends.
Tables showing which debt firms different lenders have sold debt to or have appointed to collect debt on their behalf.
Analysis and profiles of leading consumer debt collection agencies and debt purchasers.
Copy of our 2019 report: UK Consumer Debt Collection and Debt Purchase Market Insight Report 2019.

Summary

Debt purchase and debt collection providers form part of the UK’s growing consumer credit market.

The debts relate to UK consumer credit which includes prime debts (credit cards, personal loans) as well as near- and non-prime.

Our market definition excludes the purchase and collection of:
– residential mortgage debt and student loans, as these are not treated as consumer credit under UK law.
– non-consumer credit debts such as utility, telecoms and council tax bills, and business debts
– non-UK debts

We also exclude standalone service providers to the debt collection industry, including solicitors, bailiffs and collection agents, noting that some solicitors also have debt collection firms.

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.

Market outlook / COVID-19

It is clear that the COVID-19 virus will have a major impact on the UK economy and hence on debt and credit markets. Given the fluidity of the situation, this impact cannot yet be fully understood. In this context, it is not sensible for us to attempt to forecast the future size and growth of the market.

In this report, we set out our thoughts on the outlook for the market which were written in February 2020, before COVID-19 became a pandemic with widespread impact on the economy. Clearly, more recent events mean that such views are now no longer applicable.  Accordingly, we expect to issue an update of this section of the report when the pandemic has subsided and the economy has returned to more normal conditions.

Purchasers of this report also receive a copy of our related report from last year: UK Consumer Debt Collection and Debt Purchase Market Insight Report 2019 which contains our most recent forecast for the market. Also we encourage users of this report to arrange a call with us for us to share our latest thinking on the outlook for the market, given the economic situation at the time.

Who Is the report intended for?

– Debt collections agencies and debt purchasers,
– Sellers and outsourcers of debt,
– Investors in the industry,
– Investment managers
– Market analysts and consultants
– Regulators
– Other parties with interests in the sector.

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

The report includes profiles of the following companies:
– Intrum
– Arrow Global (incl Capquest)
– Cabot Credit Management (including Wescot)
– Hoist Finance UK / Robinson Way
– Paragon Bank / Idem Capital
– Link Financial
– GFKL Lowell
– Max Recovery
– Lantern
– PRA Group
– Arvato Financial Services
– BPO Collections
– Credit Resource Solutions (CRS)
– Debt Managers
– Drydens (Drydens Fairfax)
– Moriarty Law
– Perch Group (ACI)
– JC International (Creditlink Account Recovery Solutions)
– PRAC Financial
– ResolveCall
– SLL Capital
– Moorcroft

 

 

 

 

UK Consumer Credit Debt Collection and Debt Purchase: Market Insight Report 2020
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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