UK Consumer Debt Collection and Debt Purchase Market Insight Report 2016

Publisher Name :
Date: 01-Feb-2016
No. of pages: 62

This report focuses on 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 while debt purchase involves buying the actual debts and the right to collect them.

Our research identifies that there is considerable overlap between the provision of both services. Many of the larger debt collection agencies have purchased portfolios of debt in recent years while all the leading debt purchasers now have their own debt collection platforms. Indeed, many have carried out debt collection on a contingent basis in particular during the period from 2008-10 when the debt purchase market was impacted by the credit crunch.

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 rate

  • Summary of market trends

  • Analysis and profiles of leading debt collection agencies and debt purchasers

  • Our forecasts for market and driver growth

  • Insights from interviews with a range of industry experts


Who Is it intended for?


  • Debt collections agencies and debt purchasers, sellers and outsourcers of debt, investors in the industry, banks, analysts, consultants, regulators 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 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

Main changes from our previous report in this area


  • Profiles updated to include acquisitions, latest financial results and important company news.

  • Analysis and description of the market updated to reflect recent trends such as increasing barriers to entry as a result of greater regulation and increased adoption of pre-approved panels of purchasers and collection agencies

  • Financial information and market drivers updated

  • Forecast models rebuilt to reflect new information and changes in the market context

  • Comments from interviews included to illustrate key points


Summary

Market context

Debt purchase and debt collection are significant UK industries with their services being used ever more widely.


  • In the financial sector, their use has helped banks not only to improve recoveries but also to meet stricter capital ratio requirements

  • The services are also 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.


The fortunes of the industry have varied significantly in response to the economic environment.


  • Having been boosted by the increase in consumer borrowing over the last 15 years, debt collection agencies have more recently been hampered by a challenging environment since the downturn.

  • Debt purchase has returned to growth following the credit crunch with both volumes purchased and prices paid increasing beyond pre-crisis levels in the last few years - although the market underperformed most expectations in 2015.


With the FCA assuming responsibility for consumer credit, regulation has become more strict, imposing costs but also improving industry structure.


  • Debt collection agencies must now do far more work to ensure that debtors are able to make repayments without causing serious financial hardship.

  • This has imposed costs on the industry which potentially threatens the viability of the contingent collection model. However, it has been helpful for the larger debt purchase groups, who have the scale to invest in developing and implementing compliant processes, and who can expect to benefit from increased barriers to entry created by the new regulation.


As the UK market has inevitably matured, several of the leading players have inevitably looked to other areas to obtain growth. This has included:


  • Other European markets

  • New asset classes such as utility and telecom debts and secured loans


Competitive landscape

Provision remains relatively fragmented with several hundred collections agencies and over 60 buyers believed to have purchased debt portfolios. The largest companies include the following:


  • Primarily contingent debt collection: Independent players such as Wescot and Moorcroft as well as the large BPO providers such as Capita (Akinika) and arvato (BCW).

  • Primarily debt purchasers: Cabot, Lowell, Arrow Global, Link, Max Recovery and 1st Credit.


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.

Focusing on excellent collections processes to minimise risk of bad publicity for the original creditor is also necessary to be win a place on the panels of the main sellers.

M&A activity has continued with both market consolidation by the leading UK players, and entrants from Europe and North America, often making acquisitions in order to gain access to key panels.

Market consolidation has enabled best practices to be rolled out across further portfolios, leading to increased returns.

Outlook

We expect to see further market growth given the:


  • Number of well-capitalised purchasers in the market

  • Increase in consumer confidence and hence borrowing levels and improvement in the collections environment which have both resulted from a stronger economy

  • Desire on the part of the major sellers to continue their selling activity and potentially increase it.


While all the major purchasers now have a collections platform and hence have no need to acquire one, we believe that further market consolidation is nevertheless still likely, given the synergies which consolidators have obtained.

Given pressure on margins, we expect Debt Collection Agencies to seek alternatives to the contingent remuneration model which has been almost ubiquitous in recent years.

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.

UK Consumer Debt Collection and Debt Purchase Market Insight Report 2016

Table of Contents

UK Consumer Debt Collection and Debt Purchase: Market Insight Report 2016 1
About this report 2
What is this report about? 2
What does it contain? 2
Who is it intended for? 2
What are the sources and methodology? 2
Main changes from our previous report in this area 2
Summary 3
Market context 3
Competitive landscape 3
Outlook 3
About Apex Insight 5
Company background 5
Consulting services 5
Commercial / operational due diligence 5
Custom market analysis 5
Primary research 5
Growth strategy 5
Related research 5
Research subscriptions 5
Contents 6
List of figures 9
Market context 10
Market definitions 10
Debt Collection 10
Debt Purchase 10
Collection and Purchase 11
Adjacent markets 11
Debtor services 11
Activities of an insolvency practitioner acting as trustee or liquidator to a bankrupt estate 11
Business insolvencies 12
Market attractiveness 12
Debt Collection 12
Debt Purchase 12
Value drivers 13
Debt Collection 13
Debt Purchase 14
Market trends 14
Transfer of regulation to the FCA 14
Improvements in systems and data usage 15
Growth in outsourcing by the public sector 15
Increased interest in other asset classes such as debt from utilities and telecoms service providers, as well as secured debt 16
UK debt purchasers entering other European markets 16
Debt collection agencies looking to explore alternatives to commission 17
Acquisition of debt collection agencies by BPO groups 17
Debt collection BPO arrangements 17
Entry of US players 17
Role of intermediaries 18
Debt purchaser fundraising via bond and equity issues 18
Market size and growth 19
Market size and growth 19
Performance of the leading companies 19
Revenue trends 19
Industry profitability 20
Estimated remaining collections 21
Overview of market drivers 21
Driver trends 21
GDP 21
Amount of consumer debt 22
Credit cards 23
Attitude of creditors 23
Attitude of creditors - debt purchase 23
Attitude of creditors - debt write-offs 25
Appetite of investors and availability of capital 26
Prices paid for debt 26
CSA figures 27
Collections environment: 29
Collections environment - unemployed and under-employed 29
Collections environment - Wages and household disposable income 30
Collections environment - Debt solutions 31
Competitive landscape 32
Number of companies 32
Leading operators 32
Revenue 32
Estimated Remaining Collections levels 33
Outlook for further consolidation 34
Profiles of leading operators 35
1st Credit 35
Akinika 37
Arrow Global 38
Arvato 40
Cabot Financial 41
CarVal 43
Hoist Finance UK 44
Idem Capital 46
Link Financial 47
Lowell Group 49
Max Recovery 51
MMF 52
Moorcroft 53
PRA UK Holding Pty Ltd: Aktiv Kapital (UK) Limited 54
Wescot 55
Forecasts 56
Approach 56
Key drivers forecast 56
GDP 56
Amount of consumer debt 56
Attitude of sellers 56
Write-offs 57
Prices paid for debt 58
Commissions levels 59
Collections environment 59
Unemployment and underemployment 59
Household disposable income and wages 60
Housing costs 60
Government fiscal tightening and benefits cuts are expected to continue 61
Interest rates are expected to rise - but the expected timing has slipped back and the impact uncertain 61
Market forecast 61
Risks to the forecast 62

List of Figures

Combined revenue of leading debt purchasers & collections agencies / £m 20
Historical UK GDP in current prices, inflation (GDP deflator) and real GDP / % annual changes 22
Number of credit cards in issue / m, end of year 23
UK bank & building society unsecured consumer debt written off / £bn, % of total unsecured consumer debt 25
Total amount spent on debt / £m 27
Total debt held for collection by CSA members / £bn 28
Debts placed with Debt Collection Agencies and owned by Debt Purchasers / £bn 28
Debts collected by Debt Collection Agencies and Debt Purchasers / £m 29
Historical number of unemployed and underemployed / m 29
Number of people in employment / m 30
UK median earnings and real household disposable income annual growth rates / % annual change 30
Historical number of new personal insolvencies per year / '000 31
Leading UK debt purchasers and DCAs by latest revenue / £ m 32
Revenue growth rates of leading debt purchasers and DCAs / % CAGR 33
120-month ERCs for leading debt purchasers / £m 33
84-month ERCs for leading debt purchasers / £m 34
1st Credit (Funding) summary financials 35
Akinika summary financials 37
Arrow Global summary financials 38
Arvato Financial Solutions summary financials 40
Cabot Financial summary financials 41
CarVal Investors UK summary financials 43
Hoist UK summary financials 44
Idem Capital Holdings summary financials 46
1st Credit (Funding) summary financials 47
Lowell Group summary financials 49
1st Credit (Funding) summary financials 51
MMF summary financials 52
Moorcroft summary financials 53
PRA Group UK summary financials 54
Wescot Topco summary financials 55
Historical & forecast UK GDP in current prices, inflation (GDP deflator) and real GDP / % annual changes. 56
UK historical & forecast secured and unsecured household debt / £bn 56
Historical & forecast face value of debt sold / £bn 57
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) 58
Historical & forecast average price paid for debt purchased / pence per £ face value 58
Historical & forecast total amount spent on debt / £m 59
Unemployment and underemployment / m 59
Number of people in employment / m 60
UK real household disposable and average income / % annual change 60
UK consumer debt purchase and collection historical & forecast market size / £m 61

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