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Better TCF in 2008 and other predictions |
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In our position at the hub of the debt industry, TDX Group interacts across a broad range of the market, gaining a depth in knowledge and data that is unsurpassed by any other organisation. The insights gained through this unique position allow TDX Group to understand the trends that are taking place within the debt industry, and give us an informed view of what to expect in this turbulent market place throughout 2008.
2007 was a very challenging year as the impact of the US credit crunch reached the UK. Many creditors had to take drastic action to change their business models in order to react to the changing landscape. Credit controls, restricted lending and investment in arrears management successfully stopped the increase in unsecured loss rate, though we have not seen a return to 2004 levels and do not expect to.
The big story in 2006 was the IVA explosion, but through the introduction of services such as TDX Group’s Insolvency Exchange (TIX), and a positive response from the industry, the rate of growth of IVAs stabilised through 2007. However, evidence shows that the financial difficulty problem that was previously manifested in IVAs didn’t go away, but simply shifted to debt management plans, volumes of which exceeded half a million by the end of the 2007.
We also saw unprecedented levels of organisational change within the large financial services players, as the banks tried to respond to the challenges they faced. Despite all of this, investment banks began to show a serious interest in the debt industry.
Looking ahead to 2008, there is no doubt that uncertainty will continue to reign across the industry, as creditors remain cautious about how high their losses might be from exposure to the US mortgage market. In particular, TDX Group highlights the following key trends:
• The volume of consumers in financial difficulties will double
With rising mortgage rates, and food and fuel price increases expected, disposable incomes will undoubtedly become more stretched, reducing the debtor’s ability to repay. With the IVA market now stable, many consumers will turn to debt management plans as a solution, and providers will need to introduce structured processes.
• Customer acquisition will become more and more aggressive
TDX Group predicts a return to growth in acquisition, following the last 2 years of focus on credit control. As lenders increasingly understand the profile of their ‘good’ and ‘bad’ customers, the competition to acquire ‘good’ customers will inevitably heat up. Those organisations who will be successful will be the ones who quickly figure out how to lend in an uncertain environment. Product innovation is likely to become a key lever of growth.
Conversely, those consumers who do not fall into the ‘good’ category will find access to credit becoming more limited.
• The impact of principle based regulation will continue to be a challenge
Creditors’ understanding of the FSA’s expectations around Treating Customers Fairly will develop further, and focus will need to expand to ensure that all consumers in financial difficulties are considered, including those using the debt management plan as a solution.
• Creditor income gaps will put greater pressure on costs to collect
Creditors will need both flexibility and innovation in their approach to collections. Tried and tested methods will no longer be sufficient to gain a significant share of the debtor’s wallet, and a better, broader collection of tools will be required. Debt collection agencies will also need to adopt more sophisticated methods in order to continue to be able to deliver value back to their clients.
• Europe will offer attractive opportunities for the private equity market
With the UK now a mature market for debt sale, purchasers will pursue European growth strategies in pursuit of unsophisticated sellers and high margin (low price) deals.
• Debt sale prices will become uncertain
TDX Group predicts that tighter funding and increased risk and uncertainty around future outlook will depress pricing in the debt sale market. In 2007, the US market saw prices drop by 10-25%, and this trend is likely to impact the UK market throughout 2008.
Whilst there are numerous challenges ahead in 2008, those creditors and debt collection agencies who are able to take a flexible approach to both their operations and their products can expect to be in a strong position to react when the uncertainty of the market finally clears.
http://www.creditman.biz/uk/members/news-view.asp?newsviewID=7978 |
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