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UK Consumer Debt Collection and Debt Purchase Market Insight Report 2021

  • ID: 5457604
  • Report
  • September 2021
  • Region: United Kingdom
  • 50 Pages
  • Apex Insight

FEATURED COMPANIES

  • Arrow Global
  • Axactor
  • B2 Holding
  • Encore Capital (Cabot)
  • EOS Europe
  • GFKL Lowell

This report covers 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
  • Debt purchase involves buying the actual debts and the right to collect them.

The report quantifies the sizes of each segment (as measured by total collections) 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 rates since 2013 (or earlier)
  • Summary of market trends
  • Analysis and profiles of leading debt collection agencies and debt purchasers
  • Our forecasts for market and driver growth (2021-25)
  • Insights from interviews with a range of industry experts

Market context

The debts relate mainly to consumer credit, but also include other consumer debt.
  • The market definition excludes residential first-charge mortgages and student loans.
  • Debt collection services are 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 such as council tax. Debt purchase remains primarily focused on consumer credit although it is also used to some extent for other areas.

Lenders or other creditors have a choice whether to us a collection agency to work on debts on their own balance sheets, or to sell the debt to a firm that will then collect on its own behalf.

Since the FCA assumed responsibility for consumer credit in 2014, regulation has had a significant impact on the market, leading to substantial changes to the industry structure.
  • Debt collection procedures for consumer credit are now tightly regulated requiring significant investment in systems and training.
  • Many firms have left the market and others have consolidated.
  • This has imposed costs on the industry but has been helpful for the larger debt purchase groups in particular, as they have the scale to invest in developing and implementing compliant processes and can therefore expect to benefit from the increased barriers to entry created by new regulation.
  • Alongside these direct impacts on debt collection, FCA regulation has led to a decline in high cost short term lending (including payday lending) where debt collection services and debt sales have been regularly used.

The market was boosted by the increase in consumer borrowing over the last decade. We believe that total collections reached £2.1bn in 2019. However, COVID lockdowns had a significant impact with much collection activity, as well as spot sales, being scaled back or put on hold. This led to a reduction in overall collections in 2020 of over 25%.

Competitive landscape

Following consolidation, seven large groups account for a very large share of the overall market. These include Cabot, PRA, Lowell and Hoist.
  • 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.
  • Most are now part of European-wide groups, looking for higher growth outside the relatively mature UK market

A key focus for all is investment in technology to reduce operating costs, improve service levels and demonstrate compliance with regulations.

Moorcroft is the largest of the pure debt collection agencies which do not purchase debts remaining independent. Several others have been acquired by debt purchase groups with a long tail of smaller collectors, many focusing on specific niches, still operating.
Note: Product cover images may vary from those shown

FEATURED COMPANIES

  • Arrow Global
  • Axactor
  • B2 Holding
  • Encore Capital (Cabot)
  • EOS Europe
  • GFKL Lowell
Introduction

About this report

Summary

About the publisher

Contents

List of charts and tables

European Debt purchase market
  • The market in which European debt purchase / collection groups operate overlaps significantly with that of large private equity investors
  • There has been a major programme of NPL sales across Europe since 2014 supported by the ECB and governments to support potentially insolvent banks
  • Italy has had the biggest volume of large NPL sales, both in 2020 and since 2014. Spanish banks have also been major sellers, but French banks have not
  • The largest buyers of large NPL portfolios have been investment / private equity firms but the big debt purchase / collection groups have also participated
  • Utility/telecom debts are frequently purchased and, outside the UK, portfolios which include secured and SME debts, but not student loans
  • The proposed EU Directive is expected to lead towards a single market for debt purchase and collection and to encourage arrangements rather than litigation
  • Technological innovation is a top priority. It is focused on creating pan-European platforms and enabling self-service operation, to reduce costs

Market size
  • Market size methodology is top-down, cross-referenced with bottom-up company data
  • The UK has the largest consumer credit sector in Europe, followed by the other largest economies
  • NPL % varies. Greece is by far the highest, followed by other southern and eastern European markets
  • The UK has the highest non-performing consumer credit balance
  • The picture changes somewhat if secured debts are included
  • The size of addressable markets is affected by a range of country-specific factors
  • Propensity to sell is related to maturity of the market and the structure of the banking sector
  • Ability to collect is a key determinant of how much debt is likely to be sold in each market.
  • Collection is seen to be easiest in northern Europe
  • The UK is the largest market by some margin, followed by five markets of similar size
  • Our analysis of the accounts of the leading debt purchase / collection groups gives figures which are broadly similar to our market estimates
  • Performance of the leading groups and interview evidence show the market was growing rapidly prior to the pandemic. Growth is expected to resume.

Competitive landscape
  • There are eleven large European Groups with book value over €800m
  • The top European players have purchased around 60 companies over the past 10 years, most frequently buying collectors rather than existing purchasers
  • Differences in performance ratios reflect business models (eg in-house vs outsourced collection) and use of technology

Purchaser profiles
  • Arrow Global
  • Axactor
  • B2 Holding
  • Encore Capital (Cabot)
  • EOS Europe
  • Hoist Finance
  • Kruk
  • Intrum Group
  • Link (LCM) Europe
  • GFKL Lowell
  • Other European companies

Table of Exhibits
  • 1.Market map
  • 2.European non-performing and non-core loans sold by year / €bn
  • 3.2020 Non-performing and non-core loans sold by country / €bn
  • 4.2014-20 Total non-performing / non-core loans sold / €bn
  • 5.2020 Non-performing and non-core loans b
Note: Product cover images may vary from those shown

A selection of companies mentioned in this report includes:

  • Arrow Global
  • Axactor
  • B2 Holding
  • Encore Capital (Cabot)
  • EOS Europe
  • Hoist Finance
  • Kruk
  • Intrum Group
  • Link (LCM) Europe
  • GFKL Lowell
Note: Product cover images may vary from those shown