Earlier this week insideARM.com ran an article about how consumer revolving debt (predominantly credit card debt) has declined over the past 18 months (by approximately $123 billion), and how the volume of charged off credit card accounts outsourced for collection and/or sold to ARM companies has grown substantially during this same period of time (“$123 billion in 19 Months: Credit Card Debt’s Amazing Plummet,” May 11). While these trends are alarming, there is another trend unfolding which is causing some owners and executives of ARM companies that specialize in the credit card sector even greater concern.
Credit card issuers have begun to experience a decline in their delinquent and charged-off credit card volumes available for outsourcing to collection agency vendors or for sale. This decline is attributed to the reduction in credit card originations, which depending on the issuer have decreased as much as 75 percent since 2008. Some of these issuers have started to contact their collection agency vendors to discuss current or future placement volume reductions, typically at the first party, fresh and prime stages of delinquency. In situations where business volume reductions have not yet been formally announced, recovery managers are telling their agency vendors that they should focus on being ranked #1 or #2 on their batch track performance results in order to avoid losing future business. However, even this high ranking is no assurance of retention, particularly in the first party market where internal operations are winning out over external agencies in some instances.
We believe this trend is going to continue to get worse before it gets better, and collection agencies will need to maintain their competitive and financial performance without any assurance that placement volumes will continue if they do. Also critical is that agencies must stay out of the headlines and the firing line of the state Attorneys General.
There is a positive point to note. Top performing ARM companies will survive and thrive as they gain more market share and enjoy higher barriers to entry created through increased regulation and certification. Underperforming ARM companies will most likely lose market share as they fail to compete effectively with the market leaders.
For those of you planning to attend the ACA annual conference in July, I will be sharing updated liquidation and portfolio pricing results during my presentation on the credit card sector, and will also address these and other market trends in further detail.
Mark Russell manages M&A transactions for Kaulkin Ginsberg. To confidentially discuss your business interests, please contact Mark Russell at 240-499-3804, or by email.