Mike Ginsberg

It’s been seven years since the start of the Great Recession, and the impact of this event has been dramatic, long-lasting and widespread. The economy has only recently shown evidence of returning to pre-downturn levels of performance.

For the ARM industry in particular, adjusting to the “new world order” has been challenging and costly. The financial services vertical was the most severely impacted and the slowest to recover. Some of the largest financial institutions ceased placing, suing and/or selling accounts receivable, causing debt buyers, service providers and tech vendors focused on this segment to significantly revamp business strategies or sell out.

As we wrap up another year, let’s take a few moments to ponder some of the potentially big game changers looming on the horizon in 2015 and beyond for U.S. ARM companies and their possible implications.

An increased demand for health care. Starting next year, the baby boomer generation – the largest population group in the United States, estimated to be 77.3 million people and nearly 25% of the U.S. population – will begin retiring from the labor force. The health care industry is expected to grow rapidly to meet the needs of this aging population. In order to service these numbers, hospitals, senior living centers, doctors’ offices and other health care providers will undoubtedly seek greater support from revenue cycle and accounts receivable management firms. Embracing this change becomes essentially, especially since it’s coupled with increased government regulation and consolidation among health care providers. Major opportunities abound for health care-focused service providers to expand offerings and geographic coverage to capitalize on market changes.

Also on the topic of health care, we will pay close attention to House v. Burwell and King v. Burwell (a.k.a. Obamacare vs. Scaliacare). Should these cases win in court, they would invalidate any federal subsidies to states that did not set up a health exchange themselves. The loss of hundreds of billions of dollars in federal subsidies would impact nearly 100 million Americans and essentially destroy the law. The cancellation of nearly 100 million policies could have drastic impacts on the ARM industry that services health care clients as it would significantly boost the need for self-pay collection work since insurance companies will not pay for these plans going forward.

Student loans, the fastest growing market segment, are also the most dynamic. In Q3 2014, the U.S. student loan market reached $1.126 trillion, with nearly $125 billion in delinquencies. This market segment catapulted into the largest growth market for U.S. ARM companies positioned for the windfall. However, changes are looming on the horizon and will be watched closely in 2015. Consider that President Obama wants to overhaul the student loan market as he believes they are a barrier to economic growth. The Obama administration is exploring policies like PAYE, which allows graduates to cap their repayments at a set percentage of disposable income, followed by total debt forgiveness after 10 years of public service or 20 years in the private sector. Adding fuel to the fire, the U.S. Treasury Department is flirting with a pilot program to manage some of the default accounts from the Department of Education now being outsourced to private collection agencies. ED is behind schedule for awarding the unrestricted student loan contract awards and some insiders speculate ED will not complete the process until the end of the 2015 fiscal calendar year.

Subprime credit card borrowing is on the rise. Some major lenders are pursuing risky credit card borrowers more aggressively in an effort to fill a void created in this market segment and fuel growth amidst tight regulation. Banks and credit card companies issued 3.7 million credit cards to subprime borrowers during the first quarter, a 39% jump from a year earlier and the most since 2008, according to data provided by Equifax Inc. Richard Fairbank, chief executive of Capital One, said at an investor conference earlier this year that many card companies are again targeting subprime customers. Capital One reported about one-third of its U.S. credit card balances belonged to borrowers with FICO scores of 660 or lower, or who had no score by the end of the first quarter. Wells Fargo also reported more than $2.1 billion in credit card balances with borrowers whose FICO scores ranged from 600 to 639 in the first quarter, up 9% from a year earlier and 18% from two years earlier. These trends continued in the second half of the year. While bankcard/credit card agencies are not out of the woods yet, this bodes well for agencies and debt buyers that suffered significant client losses in recent years while incurring escalating compliance costs.

On the M&A front, we expect a strong wave of consolidation among collection agencies and law firms over the next 18-24 months as smaller and midsize service providers find it increasingly more challenging to operate profitably as a stand-alone businesses.

We hope you join Rozanne Andersen and me as we cover these and other market changes on January 22^nd at 2 p.m. EST for our final webinar installment of the 2014 Leadership Series for ARM Executives. Free registration is now available online.