2018 has probably been the busiest year for consumer asset sale in the UK since 2008. Speak to any major debt purchaser and they will advise you of the increase in assessing portfolios, pricing calculations and on-boarding customers. Many creditors have used asset sale as part of their process for a number of years. However, FCA authorisation for debt purchasers, the FCA thematic review on early-stage collections and the provisioning implications of IFRS9 have made asset sale a more attractive option for sellers, both established and new to the market.
Whether creditors are considering performing loans, semi-performing loans, relatively early stage non-performing loans, late loans or warehouse stock, the options are plentiful. The debt purchase industry has continued to grow its customer-centric strategies and treatment paths, and confidence is rightly high that when a portfolio of customers is sold to the correct debt buyer, they will be treated fairly and appropriately.
Even though there have been a number of acquisitions within the debt purchase space, we have also seen a trend of diversification within portfolio uptake from the buyers. Of course, there are still some sector level areas of expertise, but buyers have widened their remit from say, financial services and retail sector focus to move into telco and utilities markets. This has resulted in more credible companies entering the market to purchase portfolios while providing sellers with the brand protection they require and relevant customer support. Economies of scale, funding models and overarching strategic plans have led to very competitive pricing within the UK over the last 18 months. Creditors are quite rightly looking at their options and making sure that asset sale is optimised to benefit their bottom line and the treatment of their customer base.
We are now starting to witness most high-yielding activity taking place prior to the portfolio presentation to the market. Lots of options doesn’t just mean it’s a chance to clear the decks, a seller has to carefully consider the right time to sell, what to sell, how to present the portfolio for sale, and who to engage. This drives optimum financial return but more importantly ensures the customer is treated fairly and with due care. By using the correct data, segmentation and market insight techniques, sellers are able to present a high-quality portfolio to the market.
We have brokered portfolios where we have presented only around half of the total portfolio and still achieved 97% of the proceeds as if the full portfolio would have been sold. Fundamentally, this is to reduce the risk to the seller and buyer, protect the consumer and customer brand, but it also leads to a better price being achieved. Using data sets and indicators to suppress potential fraud cases that have slipped through the net on some portfolios, and identification of potentially vulnerable or high-risk customers is time well spent before the presentation and execution of a sale. This assessment is a good belt and braces approach to support earlier collections work too, enabling identification of highly indebted or vulnerable customers to be signposted for the correct advice and support provided by market specialists.
Ripples from GDPR have been felt within the consumer asset sale market, not a landslide but some sellers and buyers have interpreted the regulation as to suppress any customer level information during the sale process. Some sales have taken place with only portfolio and postcode level insight. For such sales, segmentation of the portfolio to present to the most suited parties is key in sustaining financial returns. More consented appropriate data and insight during the process will always be the best way to minimise risk and achieve the right outcome.
It’s difficult to point to definitive trends within the asset sale and purchase market without considering the macro-economic landscape that is likely to precipitate continued sales. Despite strong global growth, UK GDP growth in 2019 is forecast to be a modest 1.5%, and the outcome of Brexit post-March 2019 remains a controversial debate. Economic experts predict that, depending on the outcome of any potential deal, national income could fall by between 2% and 8% in 2019, with expected tax revenue losses between £20 billion and £80 billion. Such a reality will see an increase in customers in arrears and a growing need for debt advice and appropriate debt solutions as well as a continued upward trend for asset sales. Given that an increase in the number of portfolios to market is set to continue, supporting the asset sale process with the correct suppression techniques is a key factor to ensure the optimum approach for the consumer, seller and buyer.
James Connolly, Business Development Director – UK Asset Sale, TDX Group