Warning: DOMDocument::loadHTML(): htmlParseEntityRef: no name in Entity, line: 17 in /home/dev/public_html/wp-content/themes/pru2.0/amp/single.php on line 52
Warning: DOMDocument::loadHTML(): htmlParseEntityRef: no name in Entity, line: 17 in /home/dev/public_html/wp-content/themes/pru2.0/amp/single.php on line 52
Apex Insight’s latest report on the UK debt purchase and debt collection markets finds that growth has continued as both banks and those in other sectors look to outsource their consumer debtor books.
In the financial sector, their use has helped banks not only to improve recoveries but also to meet 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 decade, debt collection agencies have more recently been hampered by collections difficulties during the prolonged downturn in the economy and the unbalanced recovery which has, so far, failed to deliver real wage growth. Debt purchase has returned to growth following the credit crunch with both volumes purchased and prices paid increasing strongly in the last couple of years.
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 themselves serious financial hardship. While this has imposed costs on the industry, it favours for the larger incumbents who have the scale to invest in developing new processes and who can also expect to benefit from increased barriers to entry
Debt purchasers have continued to be innovative in seeking necessary funding with further successful high-yield bond issues. The successful flotation of Arrow Global appears likely to pave the way for further IPOs in future.
M&A activity has continued with both mergers amongst the leading players, and new entrants from Europe and North America, often making acquisitions in order to gain access to key panels. Recent entrants include UK companies with operations in adjacent areas, such as IDEM Capital, part of Paragon, the mortgage group and Sigma Financial, which was built on the debt recovery practice of a solicitors firm. US debt purchasers have also continued to make forays into the UK market – in part in response to tightening of regulation in their home market. Examples include PRA, which entered the UK market via the acquisition of MacKenzie Hall; Encore Capital, which entered via the acquisition of Cabot and subsequently Marlin and CarVal Investors, a subsidiary of Cargill, which has bought portfolios from banking groups in recent years and set up a JV with Arrow Global to buy student loan debt. European players have also bought into the UK market. For example, arvato acquired Credit Solutions in 2010 followed by Gothia in 2013, and Hoist Finance purchased Robinson way in November 2012 and Lewis Group in August 2013.
Despite consolidation, provision remains relatively diverse with several hundred collections agencies and over 60 buyers believed to have purchased debt portfolios. Of the largest companies, some – such as Wescot, Moorcroft, Capita (Akinika) and arvato – focus primarily contingent debt collection while others – such as Cabot, Lowell, Arrow Global, Link, Max Recovery and 1st Credit – focus on debt purchase.
Future overall growth appears likely given the success of several large purchasers in raising additional capital, the strong levels of debt sales in recent years and the appetite of creditors to continue selling. However, uncertainty remains with lack of real wage growth hampering ability of consumers to repay debts and preventing the overall economic recovery leading to growth in consumer confidence and significantly increased borrowing.
Our 2014 UK consumer debt purchase and debt collection market report explores these, and other, issues in depth and sets out how we forecast the market to develop in future.
About Apex Insight
Apex Insight is an independent provider of research and consulting services covering business and financial services markets in the UK and Europe. It publishes insightful market reports and carries out commercial due diligence and other bespoke consulting exercises to support managers, investors and advisers in making better business decisions.
