UK Consumer Debt Solutions: market insight

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Published: September 2012
Pages: 38
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Description

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

Summary

Market background
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.

Market size
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.

Competitive environment
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

Outlook
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.

Contents

The consumer debt solutions market - 5
Market definition
Customers
Debt solutions
Regulation

Market size and growth - 15
Performance of the leading debt solutions providers

Market drivers - 18
Discussion of market drivers
Driver trends

Competitive landscape - 19
Leading operators
Not-for-profit sector
Profiles of leading operators

Forecasts - 35
Approach
Key drivers forecast
Number of solutions
Market forecast
Risks to the forecast

Appendix - 40

List of charts and tables UK Consumer Debt Solutions

1. EuroDebt Financial Services reasons for clients requiring debt solutions 2010/11
2. Historical number of new debt solutions per year / ('000)
3. Typical fees by service / £
4. IVA outcomes / %
5. Evolution of IVA fees / £
6. UK Consumer debt solutions market size / £m
7. Leading debt solutions providers: like-for-like revenue trend
8. Combined pre-tax margins of leading debt solutions agencies / %
9. UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP / % annual changes
10. UK secured and unsecured household debt / £bn
11. Retail sales and bank and building society unsecured consumer debt / % annual change
12. UK bank & building society unsecured consumer debt written off / £bn, % of total unsecured consumer debt
13. Rates of unemployment and bank & building society unsecured consumer debt write-off / %
14. Number of personal insolvencies per year (England and Wales) / '000
15. Leading UK debt solutions providers by latest revenue and combined market size / £m
16. Revenue growth rates of leading debt services providers / CAGR %
17. Latest pre-tax profit margins of leading debt services providers / £'000
18. Revenue per employee for leading debt services providers/ £'000
19. Think Money holding Ltd. summary financials
20. Paymex Limited. summary financials
21. Fairpoint Group Plc. summary financials
22. One Advice Group Ltd. summary financials
23. Churchwood Financial Limited summary financials
24. Pentagon (UK) Limited summary financials
25. Money Debt & Credit Group Plc. summary financials
26. Invocas Group Plc. summary financials
27. UK GDP in current prices, inflation (GDP deflator) and real GDP / % annual changes. Historical and forecast
28. Historical and forecast UK secured and unsecured household debt / £bn
29. Rates of unemployment and bank & building society unsecured consumer debt write-off / %
30. Forecast UK bank & building society unsecured consumer debt written off / £bn, % of total unsecured consumer debt
31. Forecast number of new debt solutions per year / (‘000)
32. UK consumer debt services market size / £m

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