UK Personal Lending 2008

Published by: Datamonitor

Published: Aug. 1, 2008 - 119 Pages

Table of Contents

Overview

Catalyst

Summary

Table of Contents

Table of figures

Table of tables

The UK Consumer Credit Market in 2007 and Future Outlook

The UK consumer credit market has continued to decline in 2007

Gross lending fell by a further 0.9% in 2007 while balances grew by 5.5%

More of the same in 2008

Economic growth is forecasted to slow in 2008 and 2009

House prices are now falling

Analysis by product lines highlights mixed results

With the exception of overdrafts and retail finance, all products grew in balances over 2006-07

The market share of consumer credit balances taken up by unsecured personal loans grew over the last five years

New lending analysis highlights that retail finance and unsecured personal loans were the biggest losers

Credit cards consolidated its share of consumer credit gross advances while unsecured loans' market share continues to decline

POS finance has continued to struggle in 2007

Motor finance saw a revival in 2007

Retail finance continues to fade away

The UK consumer credit market will remain subdued going forward

Datamonitor's forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products

Under the Datamonitor view new lending in the UK consumer credit will fall in 2008 to total £199.0 billion

All individual product lines will contract in 2008

Under the optimistic scenario, the UK consumer credit sector will expand at a CAGR of 4.1% over 2008-12

In terms of individual product lines, retail finance will be the only struggling product line

Under the pessimistic scenario, the UK consumer credit market will dip to a low £186.7 billion in 2009

All individual product lines will struggle, with retail and motor finance the worst hit

Competitive Dynamics in the UK Personal Loan Market

A contracting market in 2007 saw major personal loan providers reach lower lending levels

Major lenders' new personal loan business levels in 2007 were below 2006 levels

Many of the major personal loan providers also experienced a contraction in balances outstanding in 2007

Competitive intensity in the UK personal loan market has eased somewhat

There are significantly fewer players now operating in this sector

Most lenders are focusing on their own customer database to sell personal loans

The credit crunch is forcing lenders to review their lending strategies

Advertising spend has declined in 2007, as a result of more focus on cross-selling

The credit crunch is making the personal loan market less price sensitive

Personal loan providers have increased their rate significantly in the space of a year

Going forward, bad debt and PPI issues remain a threat to lenders' profitability

Bad debt still remains an issue for lenders, although lenders seem to have learnt from their recent experience

Nonetheless, overindebtedness continues to remain a concern

The future of the PPI sector is still undecided

Personal loan providers' profitability will be adversely affected

The Rise of Online Aggregators in the UK Consumer Credit Market

Online aggregators are a growing phenomenon in the UK

Online aggregators generally earn a fee by linking consumers to financial services providers

Aggregators earn the core of their revenue in three ways, depending on their business model

As the number of Internet users has risen, online aggregators have become increasingly popular

Confused.com and moneysupermarlet.com are two of the largest aggregators for consumer credit products

moneysupermarket.com focused on consumer credit products when entering the market

Confused.com looks to become a significant player in consumer credit, following its success in insurance

Aggregators offer a number of acquisition advantages to lenders, but are not problem-free

Online aggregators chiefly allow for low-cost and large-scale acquisition

But lenders are concerned by aggregators' focus on price and the inability to know their applicants

Aggregators' orientation on price means many lenders are unable to portray products in the way they want

Lenders can receive too many applications from the wrong kind of customer

Customers acquired via this channel yield low profits and offer little cross-sell opportunity

Online aggregators have changed the competitive dynamics of the consumer credit market

Price competition has increased, giving rise to lower margins for lenders

The 'Big Four' players, although reluctant at first, have become active players in this channel too

Consumer credit product innovation for aggregator-only distribution is gradually becoming more common

In order to stay ahead, lenders have no choice but to embrace this form of distribution

It is ultimately in lenders' own interest to work with, rather than against, online aggregators

Even in the current difficult consumer credit environment, lenders still need to work with aggregators

The online aggregator space still has significant room to grow unless consumer skepticism gets in the way

A large number of other players, such as Tesco Personal Finance, have moved into this space

Only considerable consumer skepticism can really hamper this channel's growth, but this is unlikely

Some aggregators are going into the editorial space and becoming opinion-makers within the industry

Aggregators are becoming more sophisticated comparers and need help from lenders to take this further

A number of aggregators allow for product differentiation by credit rating, but this is at a beginning stage

There is discussion around using customer feedback as a way to rate lenders, but this is a long way off

Aggregators are keen to draw up a code of conduct for transparency, which can only be good for lenders

Personal Lending Innovations from Abroad

Product design: the rest of the world has strived to make the unsecured personal loan a more dynamic product

Banks in Dubai offer customers leveraged investment products

The Retail Banking Team view

Dubai loan products are Shariah compliant

The Retail Banking Team view

Loan providers are offering a plethora of products that profess to care for the environment

The Retail Banking Team view

Pricing structure: some French banks charge different interest rates depending on region

Crédit Agricole offers a simulation facility for loan payback that accounts for regional differences

The Retail Banking Team view

Repayment options: lenders from abroad tend to offer much more flexibility with their loan repayment options

In Singapore, GE Money's James personal loans offers flexible repayment options

The Retail Banking Team view

Loan Trimmer provides borrowers with tax savings

The Retail Banking Team view

Many banks allow customers to redraw their funds

The Retail Banking Team view

Bundling: unlike their foreign counterparts, UK banks do not tend to bundle products, instead they favor standard cross-selling techniques

Bundling products to existing customers is common in Dubai and Australia

The Retail Banking Team view

Customer segmentation: loan providers are expanding their loan offerings to take account of different consumer segments

Loan providers in the French market have a strong focus on providing loans to the young

The Retail Banking Team view

Loans for RRSP in Canada

The Retail Banking Team view

Distribution: the use of SMS messages to apply for loans is more advanced abroad than in the UK

Turkish banks are offering customers the chance to apply for a loan through their mobile phone

Swedish SMS message loan providers have proved popular among the young

The Retail Banking Team view

New technology: loan providers are gravitating towards social networking sites as the next stage for selling loans

Social lending has emerged with the popularity of social networking sites

The Retail Banking Team view

Financial institutions have started advertising financial products on social networking sites

The Retail Banking Team view

An Analysis of Consumer Trends in UK Online Personal Lending

The Financial Services Consumer Megatrend Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors

A Megatrend framework is vital for financial services

10 Megatrends that impact the actions and attitudes of financial services customers have been defined

Authenticity

Comfort

Connectivity

Convenience

Individualism

Wellbeing

Demographic Complexity

Financial Intelligence Complexity

Lifestage Complexity

Wealth Complexity

Lenders are covering most trends to a certain extent; however, there is still plenty of capacity for greater innovation in UK online personal lending

Lenders are most commonly targeting Convenience and Financial Intelligence Complexity

Despite Convenience being the focus for most loan sites, there are huge missed opportunities

There are many ways to target the Convenience Megatrend

Financial Intelligence is an important trend, but appears to lack any deliberate targeting

More can be done to target Financial Intelligence

Lenders use images to convey a sense of Comfort, but they could do more

Providers can improve the manner in which they target the Comfort trend

Like the Comfort trend, lenders are using images to appeal to the Wellbeing Megatrend

The Wellbeing trend can be targeted in a variety of ways

Few providers are successfully hitting the Lifestage Megatrend

Changes in the traditional Lifestage boundaries are presenting lenders with new opportunities

Despite being a strong focus for some sites, Authenticity is another area where improvements can be made

There are at least two ways in which lenders can strengthen their focus on Authenticity

Most providers are not focusing on Wealth Complexity, but there are ways to rectify this

There are other methods that lenders could use to target their offering to Wealth Complexity

Lenders offer some coverage of the Individualism Megatrend, but there is room for improvement

There are elements of Individualism that lenders have so far failed to exploit

There is a disparity in the extent to which lenders cover the Connectivity Megatrend

Encouraging consumers to connect with a loan product is difficult, but can be achieved

UK lenders do not currently offer products that appeal to Demographic Complexity

Overall, HSBC, NatWest and RBS target a wide range of consumer attitudes through the messages on their websites, whereas Abbey has a message that is more focused on the key trends of Convenience and Wellbeing

Abbey's functional website places importance on the convenience of its rapid application process and the environment

Abbey is targeting customers who place a high value on convenience

Abbey is targeting consumers who are seeking higher levels of wellbeing by promoting its rates offering

Surprisingly, the bank is one of the few UK lenders to promote a green message through its banking operations

Abbey is looking to encourage greater financial intelligence

Abbey's efforts to provide comfort for its customers are embodied by its PPI offering

The principal message from Alliance & Leicester's website is cheaper loans

By promoting its rates, Alliance & Leicester is targeting consumers who fall within the Wealth Complexity trend

Alliance & Leicester is also pushing the simplicity and convenience of its offering

In order to appeal to the Connectivity trend, Alliance & Leicester uses a panel showing the financial products that other borrowers have taken out

Alliance & Leicester promotes a feeling of wellbeing to its customers through claiming that its loans can save money and improve lifestyle

Alliance & Leicester's loan calculator may improve financial intelligence

A more subtle message is that consumers can take comfort from the bank's PPI

Barclays's website is informing consumers of the freedom a personal loan could afford them

Convenience is the key message on Barclays's personal loans website

Freedom to be individual is another of the website's clear messages

Barclays is promoting authenticity by focusing on its achievements

The bank's loan matching and PPI provide comfort to consumers

Those with greater financial intelligence may be able to get an improved deal with Barclays

Barclays targets Wealth Complexity through its repayment matching facility and premier loans offer

Connectivity is an advantage for existing Barclays customers because the loan application process is quicker

Barclays's suggestions for loan purpose promote the wellbeing aspect of a personal loan

The first message that visitors to Halifax's loans website see regards improved management of their finances

Improving financial intelligence is the principal message on the Halifax loans website

Halifax's message also strongly promotes a sense of wellbeing

The Comfort trend is covered by a portfolio of PPI products

Convenience is still a fairly strong message for the provider

Halifax's rate clarity appeals to the Authenticity trend

Halifax targets individualism through its offer of a web dialogue

Halifax's smaller loan offer touches upon Wealth Complexity

HSBC has a functional website emphasizing convenience for its standard loan offering, but the more interesting layout for its non-standard products reflects their innovation

Convenience is the key message from HSBC

HSBC is experimenting with innovative ideas which appeal to the Authenticity trend

HSBC's four-part PPI offer may appeal to the consumer's desire for comfort

The bank appeals to individualism through its professional studies loan

HSBC's Professional Studies Loan also targets consumers within the Lifestage Complexity trend

Repayment holidays target financial intelligence

HSBC suggests what consumers might do to improve their wellbeing

The trend towards a sense of connectivity is targeted more in other areas of the HSBC product portfolio

Flexiloan hits the Wealth trend

Lloyds TSB's use of illustrations gives the personal loans website a more cheerful and colorful feel, which reflects its focus on comfort and wellbeing

The Lloyds TSB loans site offers a feeling of comfort

Wellbeing is another clear message from Lloyds TSB

Convenience and flexibility are also key themes coming from the website

Lloyds TSB refers to its achievements in order to appeal to the Authenticity trend

The loan repayment holidays offered by Lloyds TSB meet the Financial Intelligence Complexity

Lloyds TSB pushes the idea of individualism through its personalized quotes

Connectivity is not a key message on the website

Nationwide's site is fairly functional and has clear messages on speed and convenience of arrangement

The Nationwide website's key message is convenience

Nationwide is keen to promote its authenticity credentials

Nationwide is targeting improving financial intelligence

Nationwide caters for changing wealth through its loan top-up facility

The clarity of the website promotes wellbeing

NatWest's message focuses on the ease and convenience of getting a loan, although it also hits other messages such as informing consumers

Convenience is the principal message of NatWest's website

NatWest's website highlights its strength in covering the Comfort trend

NatWest appeals to the Connectivity trend by offering favorable terms for existing customers

The bank offers favorable terms for those seeking to improve their house, tapping into the Wellbeing trend

NatWest's 'exotic' offers tie in with the desire for authenticity

The loans website promotes financial intelligence

NatWest's products demonstrate some flexibility over lifestage

NatWest encourages individualism

RBS shares much of the look, feel and focus of its website with NatWest

Convenience is the key message from the RBS website

RBS is also promoting the comfort factor of its offering

RBS appeals to the Connectivity trend through favorable offers to existing customers

RBS is appealing to consumers by hinting at how a loan may improve wellbeing

RBS promotes its award winning PPI to appeal to the Authenticity trend

RBS's private banking website appeals to the other side of Wealth Complexity

RBS encourages financial intelligence through its loans calculator

RBS does not discriminate on lifestage in its loan offering

Chatting with an expert appeals to the need for individualism

APPENDIX

Supplementary data

The UK Consumer Credit Market in 2007 and Future Outlook

Competitive Dynamics in the UK Personal Loan Market

Definitions

General definitions

Bank of England base rate

Balances outstanding

CAGR

Consumer credit

Gross advances

Overdraft

Definitions of point of sale motor and retail finance products

Motor finance products available at the point of sale

Retail finance products available at the point of sale

Methodology

Forecasting methodology

Choice of economic variables

Model outputs

Bespoke scenario based forecasting

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Consumer credit balances outstanding by product, 2003-07 (£m)

Table 2: Market share of consumer credit balances outstanding by product line, 2003-07

Table 3: Consumer credit gross advances split by product, 2003-07 (£m)

Table 4: Market share of consumer credit advances by product line, 2003-07

Table 5: New and used car POS motor finance balances outstanding, 2003-07 (£m)

Table 6: New and used car POS motor finance gross advances, 2003-07 (£m)

Table 7: New car finance gross advances by product line, 2003-07 (£m)

Table 8: Used car finance gross advances by product line, 2003-07 (£m)

Table 9: Retail finance balances outstanding by product line, 2003-07 (£m)

Table 10: Retail finance gross advances by product line, 2003-07 (£m)

Table 11: Consumer credit forecasts under a neutral view of the economy, 2007-12f (£m)

Table 12: Consumer credit forecasts under an optimistic view of the economy, 2007-12f (£m)

Table 13: Consumer credit forecasts under a pessimistic view of the economy, 2007-12f (£m)

Table 14: Unsecured personal loan gross lending for major competitors, 2005-07

Table 15: Unsecured personal loan balances outstanding and market share for major competitors, 2006-07

Table 16: List of unsecured personal loan providers in the UK as per Moneyfacts May 2008

Table 17: Typical interest rates of major providers on a £5,000 unsecured personal loan

Table 18: Pricing structure for a sample of personal loan providers

Table 19: moneysupermarket.com group revenue and operating profit, 2004-06 (£m)

Table 20: Revenue and profit for Confused.com, 2004-06 (£m)

Table 21: Comparison of repayment rates for an equivalent loan across four different French counties

Table 22: Nationwide's and Halifax's house price indices, May 2007-May 2008

Table 23: Forecast performance of the consumer credit market drivers under the Datamonitor view, 2007-12f

Table 24: Forecast performance of the consumer credit market drivers under the optimistic view, 2007-12f

Table 25: Forecast performance of the consumer credit market drivers under the pessimistic view, 2007-12f

Table 26: Gross lending market shares for major unsecured personal loan providers, 2005-07

Table 27: Advertising spend on personal loans for major providers, 2006-07

Table 28: Monthly interest rates on unsecured personal loans

Table 29: UK banks' and building societies' write-offs on consumer lending

Table 30: PPI gross written premium by product line, 2006

List of Figures

Figure 1: Consumer credit gross lending in the UK market has continued to fall in 2007 whereas balances outstanding have continued to grow steadily

Figure 2: House prices have been falling in recent months

Figure 3: Unsecured personal loan balances rose by 10% over 2006-07

Figure 4: Unsecured personal loans has strengthened its market share of balances over the last five years

Figure 5: Gross advances for retail finance and unsecured personal loans fell in 2007 whereas the remaining product lines saw a growth

Figure 6: Credit cards cemented its share of consumer credit gross advances further in 2007

Figure 7: New car finance accounted for the majority of motor finance balances in 2007

Figure 8: Gross advances for both new car and used car finance rose in 2007

Figure 9: All product lines within retail finance saw a reduction in balances in 2007

Figure 10: Gross lending for all product lines of retail finance has been falling steadily

Figure 12: Under the Datamonitor view gross advances in the UK consumer credit sector will contract by 3.2% in 2008

Figure 12: Under the optimistic scenario the UK consumer credit sector will reach £247.0 billion in gross lending in 2012

Figure 13: Under the pessimistic scenario, the UK consumer credit market will grow at a CAGR of 0.4% over 2008-12

Figure 14: With the exception of Alliance & Leicester, all major lenders witnessed a fall in business level in 2007

Figure 15: All major providers witnessed a fall in market share of personal loan balances outstanding over 2007

Figure 16: All major personal loan providers have cut back on advertising spend over 2007

Figure 17: Interest rates on unsecured personal loans have risen again in the last couple of months despite a cut in the base rate

Figure 18: Barclaycard and Alliance & Leicester are in Moneyfacts' Best Buys table, May 2008

Figure 19: Write-offs on unsecured lending other than credit cards fell slightly in 2007

Figure 20: The average unsecured consumer debt per UK adult increased further in 2007

Figure 21: Lloyds TSB and RBS Group stand to lose the most with the CC's investigation of the PPI sector

Figure 22: Mashreq website outlining key features for loans against shares product

Figure 23: Screenshot of Facebook Lending Club application

Figure 24: Financial service providers regularly advertise on platforms such as Facebook

Figure 25: Megatrends by provider ranked in order of strength of message on website

Figure 26: Abbey's website informs consumers of when they should be considering, for example, a green loan. It also has a fairly prominent loans calculator

Figure 27: Barclays' website emphasizes the convenience of its loans and quality of loan protection

Figure 28: Halifax's website gives consumers an indication of the APR range and a loans calculator

Figure 29: HSBC's Professional Studies Loan allows flexible repayments

Figure 30: Lloyds TSB's website emphasizes what can be done with an unsecured personal loan

Figure 31: Nationwide's website has a loan calculator in the middle with panels showing key features

Figure 32: Nationwide's summary page shows key product features in a table format

Figure 33: RBS's website has a clear loans calculator and images to promote what can be achieved with a loan

Figure 34: Point of sale product aggregations used within this briefing

Abstract

• Covers unsecured personal loans, credit cards, overdrafts, motor finance and retail finance in the UK. Focus is on unsecured personal loans.
• Provides forecasts under 3 different scenarios for the consumer credit market as a whole as well as for individual product lines.
• Includes market share data for 2007 for major personal loan providers and examines the latest competitor developments shaping the market.

• Gain access to the latest market sizing and forecasting data for the UK consumer credit market to place your performance in context to the market's.
• Gain insight into how your competitors are responding to the various issues facing the unsecured lending sector.
• Receive updated market share data to tell you how your company compares to your closest rivals.

About MarketResearch.com
MarketResearch.com is an online aggregator selling over 250,000 market research reports, company profiles and country profiles from over 650 research firms. Our reports will provide you with the critical business and competitive intelligence you need for strategic planning and marketing research. Coverage includes the US, UK, Europe, Asia and global markets.