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Long-term trends shaping our markets

The most important long-term trends that will shape the future European debt collection industry are: market consolidation and new market players, changed regulations, technological and digital sophistication, increased focus on consumer protection and sustainable debt collection. 

Market consolidation and increased competition

The European Banking Authority is attempting to harmonise jurisdictional differences in the NPL market as well as promote cross-border firms through regulation. This has also impacted the cost of doing business, benefitting companies of scale. This, in combination with the pandemic, have limited the organic growth opportunities for debt collector companies and drives consolidation in the sector. The market competition is also likely to intensify, due to participation by new market players such as private equity funds and hedge funds, regulatory compliance, and the use of new technology. The market transformation will probably benefit companies that are agile, tech-driven and customer-focused.

Regulations

The financial sector is a highly regulated area and changes in regulations has a significant impact on the sector. Amendments to the EU’s regulations 2019 introduced a prudential backstop for NPLs for the entire European banking sector. The backstop requires a deduction from the bank’s own funds where NPLs are not sufficiently covered by provisions. An unsecured NPL exposure has to be written down entirely within three years. The NPL backstop is thought likely to lead to a steady flow of fresh portfolios for sale to debt collection companies each year. The backstop effect will gradually start showing from 2022 as it concerns defaults on loans originated after April 2019.

Hoist Finance is, unlike many of our debt collector peers, a regulated credit institution (similar to a bank) and we are subject to the strict bank regulations. Current proposed amendments of EU’s standards for calculations of credit risks would have a significant impact of our business. For banking institutions operating in the secondary market for NPLs, such as Hoist Finance, the changes result in a decrease of applicable risk weights for its unsecured non-performing loans from 150 per cent to 100 per cent, increasing our investment capability for unsecured non-performing loans.

Digitalisation

Digitalisation affects most things in society, including the credit management sector. With increasing importance given to customer experience, collections practices have altered significantly over the past decade. Using the right channels is important to effectively help those experiencing financial difficulty, especially those who have been in the collections cycle for a long time. Digitalisation is also changing payment behaviours and cashless and credit-based payments increases. The collections operating model needs to be flexible enough to allow debt collectors to segment different audiences. Continuous product development is required to meet the needs of different client and customer categories.

New Technology

The rapid technological development results in more efficient debt collections at lower costs. New technology transforms the businesses’ operations, allowing them to work quicker, more accurately, and more cost-effectively than before. Deeper analytics and insights will allow debt collectors to develop more detailed client profiling to assess risk, optimise legal services, to reduce expenses and to add more suitable touchpoints to enrich the customer journey. Artificial intelligence and automatisation can manage large amounts of data and rapidly and efficiently recognise core patterns. This helps debt collectors to gain greater knowledge of its debtors and as a result significantly improve collections efforts. It improves the customer experience, making better use out of the data they provide to offer personalised, tailored recommendations and in the end a more efficient debt collections.

Increased focus on Consumer Protection

Treating customers ethically and with respect for their financial situation is the key for us to create long-term value for our client banks, customers and all stakeholders. The Directive of the European Parliament and of the Council on credit servicers and credit purchasers is one example of regulatory changes that focuses on increased consumer protection. This Directive aims to foster the development of secondary markets for NPLs while at the same time safeguarding borrowers’ rights.

The Directive will require credit servicers to treat borrowers fairly by for example guaranteeing that communications do not in any way constitute harassment. Furthermore, it sets out streamlined guidelines for transparent complaints management, and emphasises the necessity to take individual customer circumstances, such as the consumer’s ability to repay, into account in relation to forbearance measures. The Directive constitutes an important driver for industry change and aligns well with Hoist Finance’s commitment to help our customers back to the financial ecosystem through customized and amicable solutions.   

Growing risk for Financial Exclusion

As the prevalence of financial services usage grows across Europe, the consequences of being excluded from the financial system will become more severe, due to the fact that those not served by the financial system will face further social exclusion and potential difficulties to make regular payments and get out of debt spirals. The overall level of arrears has been increasing across EU Member States, indicating that more and more households are becoming over-indebted. Reflecting the difficult situation of European households, the volumes of NPLs have been growing. Portfolios with an estimated face value of over EUR 100 bn are expected to trade in 2022 and remain at a heightened level for several years to come. Furthermore, in 2022, more consumers are likely to be vulnerable due to Covid-19 effects as restrictions fade and government support programs expire. These changes in customer circumstances make it even more vital toenable customers with the right tools and support, for them to manage to pay off their debts in a sustainable way. 

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- Annual Report 2021 -
- Årsredovisning 2021 -