UK Consumer Debt Collection and Debt Purchase:

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1 UK Cnsumer Debt Cllectin and Debt Purchase: Market Insight Reprt 2018 Summary Apex Insight Ltd 2 Eastburne Terrace Lndn W2 6LG January mail@apex-insight.cm

2 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Abut this reprt What is this reprt abut? This reprt fcuses n the UK cnsumer debt purchase and debt cllectin markets. Cnsumer debt cllectin invlves the recvery f mney that is wned by individuals t banks, cmpanies r public-sectr rganisatins n behalf f the lender r service prvider that issued the invice. Debt purchase invlves buying the actual debts typically bundles r prtflis f mainly unsecured cnsumer credit lans; r ther cnsumer receivables frm cmpanies such as banks, credit card issuers, utilities r telecms prviders which have billed cnsumers fr having prvided a service t them alng with the right t cllect them. The reprt quantifies the market and its grwth rate while reviewing key factrs behind these figures and explring drivers f grwth and prfitability. The leading debt purchasers and debt cllectins agencies are prfiled, and their perfrmance is cmpared What des it cntain? Quantificatin f market size and histrical grwth rates since 2012 Summary f market trends Analysis and prfiles f leading debt cllectin agencies and debt purchasers Our frecasts fr market and driver grwth ( ) Insights frm interviews with a range f industry experts What are the surces and methdlgy? This reprt is based n Publicly available data including cmpany annual reprts, websites, press releases and gvernment statistics In-depth analysis f the macrecnmic envirnment and ther relevant market drivers Interviews with a range f senir-level cntacts in the market Infrmatin frm these surces has been synthesised and presented clearly and cncisely with extensive use f charts and tables t illuminate pints and supprt cnclusins. Main changes frm ur previus reprt in this area Prfiles updated t include acquisitins, latest financial results and imprtant cmpany news. Analysis and descriptin f the market updated t reflect recent trends such as increasing barriers t entry as a result f greater regulatin and shift twards utsurcing / partnership mdels fr debt cllectin Financial infrmatin and market drivers updated Frecast mdels rebuilt t reflect new infrmatin and changes in the market cntext Cmments frm interviews included t illustrate key pints Wh is it intended fr? Debt cllectins agencies and debt purchasers, sellers and utsurcers f debt, investrs in the industry, banks, analysts, cnsultants, regulatrs and ther parties with interests in the sectr Apex Insight Ltd 2

3 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Summary Market cntext The UK debt purchase and debt cllectin industry has grwn by arund a third in five years and is clse t reaching an annual revenue f 2 billin f per year. The debts relate t bank lans r ther cnsumer debt (the market definitin excludes residential first-charge mrtgages). The services are mst cmmn in the financial sectr but are increasingly being used in ther areas where there are significant cnsumer debts, such as telecms and utilities, as well as in areas f the public sectr. Lenders r ther creditrs have a chice whether t us a cllectin agency t wrk n debts n their wn balance sheets, r t sell the debt t a firm that will then cllect n its wn behalf. Cnsumer lenders r ther debtrs debtr Having been bsted by the increase in cnsumer brrwing ver the last 15 years, the market has mre recently shwn signs f maturing with lwer grwth rates. Debt purchasers have grwn at a faster rate than debt cllectin agencies. UK utstanding unsecured cnsumer credit / bn Credit card Persnal lan Service prviders e.g. slicitrs, bailiffs Debt cllectin UK cnsumers Debt purchase Investment funds, private equity Surce: Bank f England Since the FCA assumed respnsibility fr cnsumer credit in 2014, regulatin has had a significant impact n the market, leading t substantial changes t the industry structure. Debt cllectin prcedures are nw tightly regulated requiring significant investment in systems and training. Many firms have left the market and thers have cnslidated. This has impsed csts n the industry but has been helpful fr the larger debt purchase grups in particular, as they have the scale t invest in develping and implementing cmpliant prcesses, and can therefre expect t benefit frm the increased barriers t entry created by new regulatin Apex Insight Ltd 3

4 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 As the need fr investment in cllectin prcesses increases, there has been a shift frm cntingent cllectin mdels (where agencies are rewarded based n amunts cllected) t lnger-term partnership r utsurcing mdels. Cmpetitive landscape The largest debt cllectin-nly firms include Arvat, Capita (Akinika) and Wesct (acquired by Cabt in Nvember 2017). Althugh many firms have left the market in recent years, debt cllectin remains relatively uncncentrated with many small firms cllecting mainly cmmercial debts rather than cnsumer credit. Leading debt purchasers include Cabt, Lwell, Arrw Glbal, Link, Max Recvery and 1st Credit. Leading players cntinue t make better use f data t imprve their cllectin success and t enable them t ffer higher prices t imprve their success in purchasing prtflis. The recent planned flatatin f Cabt, which was ultimately cancelled, indicates the strng market interest in the sectr but als pssibly sme cnfusin regarding perating mdels and hw purchased prtflis and their cllectins are accunted fr. Outlk We expect t see further market grwth given the: Number f purchasers backed by private equity r ther investment firms in the market Increased incentives fr credit prviders t remve nn-perfrming lans frm their balance sheets due t new accunting and prudential regulatin. Greater cmplexity f cnsumer credit cllectins t meet FCA cnduct regulatin which encurages firms t pass debts t specialists t handle. We believe that further market cnslidatin is still likely, given the synergies available frm extending use f mre sphisticated cllectin systems and teams. We expect debt cllectin agencies t cntinue t shift away frm the cntingent remuneratin mdel twards lnger-term utsurcing arrangements with rewards based n a cmbinatin f perfrmance bjectives. Our frecast, which analyses histrical relatinships between key drivers and variables and takes int accunt views f thse in the market, sets ut hw we expect the market t develp in this cntext Apex Insight Ltd 4

5 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Abut Apex Insight Cmpany backgrund Apex Insight is an independent prvider f cnsulting services, research and analysis. Funded in 2012 by a team with experience f wrking in strategy cnsulting and the transactin advisry team f a Big 4 firm Fcus n a range f services markets including cnsumer credit Publish market reprts and carry ut cnsulting wrk t address mre specific requirements Cnsulting services Cmmercial / peratinal due diligence Experience f leading c.150 cmmercial due diligence reviews n behalf f private equity and crprate acquirers / vendrs. Wrk includes assessment f market attractiveness, cmpetitive psitin, custmer relatinships, infrmatin systems and peratinal perfrmance. Custm market analysis Research and evaluatin f yur required market t yur desired scpe. Market quantificatin, cmpetitr insight and intelligence, analysis f drivers and frecasts Primary research We have deep experience in cnducting face-t-face interviews with senir-level decisin-makers and managing large-scale surveys, plus even mre experience in analysing findings t prvide insights and actinable results Grwth strategy Outward lking and fact-based: market entry strategies, search and screening prgrammes fr new partners, custmers r acquisitin targets, benchmarking. Related research UK Car Dealer Pint f Sale Finance: Market Insight Reprt 2017 (August 2017) UK High-Cst Shrt-Term Credit (including Payday Lending): Market Insight Reprt 2017 (May 2017) Pint f Sale Finance: UK Market Prfile and Frecasts 2017 (January 2017) Credit Reference Agency Services: Market Insight Reprt 2016 (July 2016) Rent-t-Own Retail: UK Market Prfile and Frecast 2015 (September 2015) Hme Credit: UK Market Prfile and Frecasts 2015 (September 2015) Pawnbrkers and High Street Lan Stres: UK market prfile and frecast 2015 (August 2015) Eurpean Peer-t-Peer Lending: Market Insight 2015 (June 2015) Research subscriptins Fr clients wh require access t multiple reprts plus reprt updates and analyst time fr further research, presentatins, etc. Can be tailred t meet individual requirements cst-effectively 2018 Apex Insight Ltd 5

6 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Abut Apex Insight: example cnsumer credit research and cnsulting clients 2018 Apex Insight Ltd 6

7 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Cntents UK Cnsumer Debt Cllectin and Debt Purchase: Market Insight Reprt Summary... 1 Abut this reprt... 2 What is this reprt abut?... 2 What des it cntain?... 2 Wh is it intended fr?... 2 What are the surces and methdlgy?... 2 Main changes frm ur previus reprt in this area... 2 Summary... 3 Market cntext... 3 Cmpetitive landscape... 4 Outlk... 4 Abut Apex Insight... 5 Cmpany backgrund... 5 Cnsulting services... 5 Related research... 5 Research subscriptins... 5 Abut Apex Insight: example cnsumer credit research and cnsulting clients... 6 Cntents... 7 List f figures... 9 Abut the market Market definitins Market backgrund Apex Insight Ltd Adjacent markets Market attractiveness and barriers t entry Value drivers Regulatin Market size and grwth Methdlgy Market size Debt sale market Appetite f investrs and availability f capital Credit Services Assciatin data Revenue trends Industry prfitability Market drivers Ecnmic perfrmance Cnsumer brrwing Ability t service brrwing Attitude f creditrs Imprvements in systems and data usage Grwth in utsurcing by the public sectr Increased interest frm ther asset classes Cmpetitive landscape Prfiles f leading debt cllectrs Arvat Capita plc Mrcrft Wesct

8 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Prfiles f leading debt purchasers st Credit Arrw Glbal Cabt Financial Hist Finance UK Idem Capital Link Financial Lwell Grup Max Recvery Mtrmile Finance (MMF) PRA Grup Frecasts Apprach Key driver frecasts Debt sale market frecasts Cllectins envirnment Market frecast Outlk fr further cnslidatin Risks t the frecast Apex Insight Ltd 8

9 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 List f figures Scpe f market Alternative measures f debt purchase activity UK cnsumer debt purchase and cllectin market size / m Face value f debt sld / bn Average price paid fr debt purchased / pence per face value Ttal amunt spent n debt / m Ttal debt held fr cllectin by CSA members / bn Ttal debt cllected by CSA members / m Cmbined revenue f leading debt purchasers & cllectins agencies / m Cmbined pre-tax margins f leading debt purchasers and cllectin agencies / % UK real GDP / % annual changes UK utstanding unsecured cnsumer credit / bn HCSTC lending market size by new business / bn Histrical number f unemplyed and underemplyed / m UK median earnings (current prices) and real husehld dispsable incme annual grwth rates / % annual change UK husehld debt t incme rati Histrical number f new persnal inslvencies per year / ' UK bank & building sciety unsecured cnsumer debt written ff / bn, % f ttal unsecured cnsumer debt Rates f unemplyment and bank & building sciety unsecured cnsumer debt write-ff / % Leading UK debt purchasers and DCAs by latest revenue / m Revenue grwth rates f leading debt purchasers and DCAs / % CAGR Revenue per emplyee / mnth ERCs fr leading debt purchasers / m mnth ERCs fr leading debt purchasers / m Arvat Financial Slutins Ltd. summary financials Capita debt cllectin summary financials Mrcrft Grup PLC summary financials Wesct Tpc Ltd. summary financials st Credit (Funding) summary financials Arrw Glbal Grup plc Cabt Financial Limited summary financials Hist UK summary financials Idem Capital Hldings Limited summary financials Link Financial summary financials Metis Bidc Limited summary financials Max Recvery Limited summary financials Mtrmile Finance UK Limited summary financials PRA Grup (UK) Ltd. summary financials UK real GDP / annual changes UK histrical & frecast unsecured husehld debt / bn Histrical & frecast rates f unemplyment and bank & building sciety unsecured cnsumer debt write-ff / % Histrical & frecast UK bank & building sciety unsecured cnsumer debt written ff / bn (LHS), % f ttal unsecured cnsumer debt (RHS) Histrical & frecast average price paid fr debt purchased / pence per face value Histrical & frecast ttal amunt spent n debt / m Unemplyment and underemplyment / m Number f peple in emplyment / m UK median earnings (current prices) and real husehld dispsable incme annual grwth rates / % annual change UK cnsumer debt purchase and cllectin histrical & frecast market size / m Apex Insight Ltd 9

10 UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 Abut the market Market definitins Overview Cnsumer debt cllectin invlves the recvery f mney that is wned by individuals t banks, cmpanies r public-sectr rganisatins n behalf f the lender r service prvider that issued the invice. Debt purchase invlves buying the actual debts typically bundles r prtflis f mainly unsecured cnsumer credit lans; r ther cnsumer receivables frm cmpanies such as banks, credit card issuers, utilities r telecms prviders which have billed cnsumers fr having prvided a service t them alng with the right t cllect them. There is a clse cnnectin between debt cllectin and debt purchase with many rganisatins having integrated vertically t cmbine bth activities. Mst purchasers have sme level f debt cllectin capability t service their wn prtflis while retaining cntrl ver the prcess which is increasingly imprtant t meet the requirements f bth the FCA and sellers f debts. Many f the larger debt cllectin agencies have raised capital t purchase debt prtflis. Acquiring debt prtflis gives cllectrs greater cntrl f their wrklad and hence reduces the risk f a sudden drp in activity impacting prfitability. Firms that were established as debt purchasers have supplemented their revenues by ffering cllectin services direct t lenders. Our market definitin excludes the purchase and cllectin f residential mrtgage debt. In line with the structure f the UK s financial services regulatry system, we cnsider mrtgages t be a separate market t cnsumer credit. We als exclude standalne service prviders t the debt cllectin industry, including slicitrs and bailiffs; and investrs in debt purchase, including investment funds and private equity funds. Market backgrund Debt Purchase The debt purchase industry first develped n a large scale in the US in the late 1980s and early 1990s. Its use in the UK has grwn since the late 1990s and it is nw als cmmn practice acrss Eurpe. Debts which are ffered fr sale are usually thse where the riginal lender has encuntered prblems in cllecting payments. These are smetimes knwn as underperfrming lans. The way in which sales take place has evlved thrugh time.... Private negtiatin between purchaser and seller was mst cmmn in the early stages f the develpment f the market. As the market develped, sales became mre frequent and the number f ptential buyers and sellers increased, s mre streamlined prcesses, via sealed bids r internet auctins, became mre cmmn. An intermediary, TDX, develped sftware platfrms which facilitate the sale prcess and supprt cllectins. Its systems enabled categrisatin f lans and segmentatin f prtflis with the bjective f matching lans with the party best placed t cllect them, and hence likely t ffer the best price r deliver the best returns. Larger sellers started t nminate panels f apprved purchasers t whm they ffer their prtflis. The panel system allws sellers t develp deeper relatinships with a smaller number f purchasers and hence maintain greater cntrl ver the prcess fllwing the purchase, with the bjective f reducing risk f T cntinue reading Purchase the reprt: UK Cnsumer Debt Purchase & Debt Cllectin Market Insight Reprt 2018 frm ur website 2018 Apex Insight Ltd 10