UK Consumer Debt Purchase: Market insight report
Apex Insight, May 2012, Pages: 35
In this report we review the UK consumer debt purchase industry. 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 relevant drivers of industry growth – in particular relevant economic indicators such as total consumer debt, unemployment levels and debt write-off rates – and more specific factors including levels of personal insolvencies, the attitudes of consumer creditors to the concept of debt sale and the discount to face value typically paid for debt. Our analysis of historical trends and forecasts is anchored in this information.
MARKET GROWTH AND DRIVERS
Over the last couple of decades the market for the sale of portfolios of debts held by UK consumer creditors, such as credit card issuers, personal lenders, utilities and telephone companies, has grown from start-up into a large, established market
We believe that, having been impacted by the credit crunch, the market will recover to reach revenue of £900m in 2012.
Debt purchase is driven by a range of factors which include:
- Total level of consumer debt
- Ability of consumers to service those debts, or their rate of failure to do so – which is linked to economic factors such as unemployment
- Desire of creditors to sell on a proportion of their debts and availability of capital to enable them to be purchased
- Prices paid for debt portfolios
- Collections level and profile: what proportion of the outstanding debt is collected, and when
KEY INDUSTRY ISSUES
Debt purchase can be an attractive market with good returns on capital and high growth. However, as post-2008 experience has shown, it is not without risk having cyclical characteristics and exposure to the health of the economy and credit market shocks.
It has some attractive structural characteristics:
- The ‘customers', ie the individual debtors, have very little market power, with no ability to switch away and legal obligation to make payments.
- Purchase of the portfolio means the purchaser cannot be replaced by the client, as a collector can, giving longer term visibility of revenues.
Other characteristics have been less favourable:
- Barriers to entry are low for parties with access to sufficient capital.
- It is highly competitive with limited scope for differentiation between purchasers.
- Benefits of innovation in collection are typically passed on to sellers in higher prices paid for debts.
COMPETITIVE LANDSCAPE
The market is relatively fragmented with over 60 buyers believed to have purchased UK consumer debt portfolios.
The largest companies focusing on the are when ranked by UK revenues are Cabot, Lowell, Max Recovery, Link, CapQuest and 1st Credit. Other players, such as Marlin and Arrow Global, are also now large purchasers.
There are also several other significant players – some of whom are also active in adjacent areas such as contingent debt collection.
OUTLOOK
Future growth appears likely given the:
- Success of several large purchasers in raising additional capital
- Recent recovery in the level of debt sales
However, some uncertainties remain, such as the risk that a slower economic recovery with continued high unemployment leads to:
- Consumers reducing their borrowing levels, resulting in less debt for sale
- A worse collection environment than forecast
The Debt purchase market
Market definition
Adjacent markets
Market size and growth
Market drivers
Overview
Driver trends
Performance of the leading debt purchasers
Industry attractiveness and value drivers
Industry characteristics
Value drivers for debt purchasers
Competitive landscape
Leading operators
Profiles of leading operators
Forecasts
Approach
Key drivers forecast
Market forecast
Risks to the forecast
List of Figures:
UK Consumer debt management market size / £m
UK consumer debt purchaser market size / £m
UK secured and unsecured household debt / £bn
Retail sales and bank and building society unsecured consumer debt / % annual change
UK bank & building society unsecured consumer debt written off / £bn, % of total unsecured consumer debt
Rates of unemployment and bank & building society unsecured consumer debt write-off / %
Number of personal insolvencies per year (England and Wales) / '000
Value of debt sold / £bn
Average price paid for debt purchased / pence per £ face value
Combined gross and pre-tax margins of the leading debt purchasers
Combined revenue of leading debt purchasers
Leading UK debt purchasers by latest revenue / £m
Revenue growth rates of leading debt purchasers - CAGR %
Latest pre-tax profit margins of leading debt purchasers / £'000
Revenue per employee for leading debt purchasers / £'000
Cabot Credit Management summary financials
1st Credit summary financials
Link Financial summary financials
Max Recovery summary financials
Lowell Group summary financials
Equidebt summary financials
CapQuest Group summary financials
Wescot summary financials
Moorcroft Group summary financials
Forecast UK secured and unsecured household debt / £bn
Rates of unemployment and bank & building society unsecured consumer debt write-off / %
Forecast UK bank & building society unsecured consumer debt written off / £bn, % of total unsecured consumer debt
Forecast value of debt sold / £bn
Average price paid for debt purchased / pence per £ face value
UK consumer debt purchaser market size / £m
Consumer Debt Purchase Study By Apex Insight Reveals A £900M Uk Market
New research on the consumer debt purchase industry quantifies market size, historical growth and forecasts, probes trends behind the figures, profiles leading companies and sets out value drivers.
Apex Insight has published new research on the UK consumer debt purchase industry. This quantifies the market size and historical patterns of growth, probes key trends behind the figures, profiles and explores the performance of leading companies, discusses industry value drivers and sets out a market forecast supported by relevant evidence.
The study is based on data from economic and company sources as well as interviews with senior-level contacts in the market. It includes analysis of relevant economic indicators – such as total consumer debt, unemployment levels and debt write-off rates – and more specific factors including levels of personal insolvencies, the attitudes of consumer creditors to the concept of debt sale and the discount to face value typically paid for debt. The analysis of historical trends and forecasts is anchored in this information.
It is intended for debt purchasers themselves as well as private equity and other investors, banks, analysts, consultants and other parties with interests in the industry.
The study concludes that, having been impacted by the credit crunch, which caused the fast-growing market to stall and reverse in 2009, industry revenues will recover to reach around £900m during 2012.
Future growth appears supported by the recent successes of several of the large debt purchasers in raising further capital and reported recovery in the level of purchases being completed.
However, some uncertainties remain, such as the risk that slow economic recovery with continued high unemployment could lead to consumers reducing their borrowing levels resulting in less debt being put up for sale combined with a deteriorating collection environment.
Furthermore, the market remains competitive with many smaller operators bidding for portfolios alongside the big six specialists.
Findings from the study are presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions.
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