Are these new asset classes right for you?

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New types of asset classes are hitting the debt-buying market and are now available to be purchased. These new asset classes offer an enticing opportunity for anyone who has been sitting on the sideline waiting for the credit card market to come back.

Contact CAS to learn more about these new asset classes

We have been seeing growth in the debt buying market. For a very long time, the debt buying segment of the OBS space had been getting hit square in the mouth. For example, a regulator had been knocking at the door or a creditor wouldn’t sell debt. We have been noticing the collections market overall is evolving to the point where there has been more interest from different groups. While you would have otherwise asked why would these individuals consider selling their paper, these groups are popping up more and more.

We are seeing increased opportunities in three collections of market segments for debt buyers.

  1. The first area with a growing opportunity is FINTECH, which includes online consumer lenders who are looking to sell more and more paper. A few years back these lenders didn’t want to discuss recovery strategies or liquidation planning. That has completely shifted and they are talking about it a lot more. And more participants from our industry are attending their trade shows as they contemplate selling more and more of their paper, rather than just placing it as the default rate begins to increase. That is one area getting a lot of attention now as more and more of the mid-sized to larger debt buyers continue to head into that market.
  2. The second market getting a lot of attention is commercial. Commercial has tended to be vast in terms of all the different vertical markets you can go into. More and more we are seeing opportunities pop up where creditors are considering the sale of different pools of their portfolios. That can mean anything from a pool of commercial advertising accounts to a pool of business-related credit cards that are flowing through a large issuer. Historically, they may have been shielded or weren’t interested in considering the sale of that kind of paper. However, we are starting to see a lot more interest from creditors and debt buyers in purchasing commercial or business-to-business lines of receivables.
  3. The third market is defaulted apartment collections. This market has been underserved for a long time, but we are hearing a lot more about it from different players who wish to focus on it or want to get in on it. These are accounts in which a person goes delinquent on rent. It is a consumer account. Typically this kind of work has been placed with an agency from cradle to grave. They keep it and ultimately warehouse it for the property manager. Now we are starting to see interest from some of the larger property managers in selling this kind of paper, which we have historically not seen before. It is a new market we see opening up, and there are starting to be some early on trades in that area. We are excited to see another market that is slowly beginning to open.

What advice would you give to a debt buyer in taking advantage of these opportunities?

You shouldn’t just jump into a new market. You need the right skill set, the right people, data analytics and cultural alignment for it to all line up together. First, you have to take an internal temperature read on whether you have a competitive advantage, knowledgebase, model or liquidation plan that will make it attractive for a group to sell the paper. Is there something that is going to be different other than you can write them a check on a forward flow or a spot purchase?

If you are looking to get into a new market, begin by thinking about what is different about what you are doing, and what data or experience you have inside your organization that can help accelerate market entry vs. trying to do it and hoping for the best. If you don’t have a plan when trying to get into a new asset class, it typically doesn’t end well.

About CAS

CAS oversees and executes on M&A engagements, investment opportunities, compliance/regulatory assessments, valuation and expert witness litigation matters for constituents of the Outsourced Business Services (OBS) sector.

Should you engage with these new asset classes? Contact CAS for a strategic advisory

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