About this report
NB this is an old report which we have not updated in the last couple of years. Let us know if you would be interested in a new version.
In this market report we review the UK consumer debt solutions industry, encompassing bankruptcy support, IVAs, DMPs DROs and other services provided to consumers in debt. We quantify the market size and historical growth rates while reviewing key factors behind these figures and exploring drivers of profitability.
We also carry out an in-depth analysis of the drivers of industry growth – in particular relevant economic and market indicators such as total consumer borrowings, unemployment levels, debt write-off rates, collections rates and levels of personal insolvencies. Our analysis of historical trends and forecasts is anchored in this information.
While many reports on the industry contain data and description, a critical objective for us in writing this report has been to prioritise our insights and conclusions.
What are the objectives of this market report?
Consumer debt solutions is now a large industry in the UK, having experienced rapid growth in recent years.
We believe that, in order for those involved in the market to make the best decisions in this complex and changing environment, they need to have access to the best information and understanding of the trends and drivers. The aim of this report is to provide this.
It is intended for debt solutions providers themselves as well as investors, banks, analysts, consultants and 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 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
The market for consumer debt solutions has its roots in the Insolvency Act (1986). This bought into effect IVAs and also introduced the concept of an intermediary having a role in consumer debt management, which then led to the establishment of the market for informal Debt Management Plans (DMPs).
Since the onset of the credit crunch and the ensuing recession, conditions have become far more difficult for financially distressed consumers.
– Consumers have taken steps to reduce borrowings: levels of unsecured debt were
lower in 2011 than in 2005.
– Nevertheless, a harsher economic climate with, in particular, increased unemployment, low wage growth and high borrowing costs have led to more problem debt situations.
– The enduring recessionary environment currently being experienced is a particularly potent catalyst for DMPs.
New financial products, such as payday loans, have now become an important part of the marketplace with some consumers using them to make other repayments. However, high interest rates on payday loans mean this may not be sustainable.
Analysis of both company revenues and insolvency statistics suggest that the UK debt solution market is now approaching £400m in size.
Having grown strongly during the period up to 2010, as expanding levels of personal borrowings led to high debt levels, we believe that growth has since been checked. This is mainly due to:
– Downward pressure on fee levels following the 2008 IVA protocols
– The impact of the recession and credit crunch which, by making it harder to borrow large sums, have reduced the average amount of debt owed by people entering solutions – and hence any revenues related to debt repayment levels.
The market is served by three main categories of companies
– Large players, such as Think Money, Paymex and Fairpoint, sometimes referred to as ‘factories’
– A long tail of smaller practitioners
– A considerable not-for-profit sector
There has been significant consolidation through acquisition
In recent years, leading providers have expanded their product ranges to increase their chances of being able to provide a solution to every potential customer
The market outlook is complex given the factors which impact it. There is significant uncertainty over both timing of economic recovery and
– The impact of economic recovery on the market as recovery is likely to exert downward pressure by reducing the numbers of people seeking solutions but enable the market to grow if easier credit conditions allow consumers to, once again, run up larger debts
– Regulation: OFT is currently considering regulation of the Payday Loans sector.
DMP regulatory power will move from the OFT to the new FCA in April 2014.
Our forecast, which analyses historical relationships between key drivers and variables and takes into account market views, sets out how this might look in practice.