Personal Loans - UK - December 2006

ISSUES IN THE MARKET
 ABBREVIATIONS
INSIGHTS AND OPPORTUNITIES
Who is responsible?
Embracing innovation and risk-based pricing
Debt help
Getting back on your feet
Cross-selling is full of potential
MARKET IN BRIEF
Consumers’ appetite for borrowing is diminishing
Rising levels of bad debt do not bode well for providers
Credit cards are the most popular form of consumer credit
Innovation may be the way forward
Personal loans account for just over a quarter of total consumer credit gross lending
Lloyds TSB is the leading provider of personal loans in 2006
Adspend on personal loans is third highest in financial services
More consumers are arranging loans through remote channels
Most consumers have responsible attitudes regarding borrowing money
Existing customer relationships may be key to gaining share in this market
FAST FORWARD TRENDS
Trend 1: Invasion of the data snatchers
Definition
Context
Market touch points/implications
Trend 2: Life after debt
Definition
Context
Market touch points/implications
Trend 3: Eastern Promise
Definition
Context
Market touch points/implications
Trend 4: I want it all and I want it NOW
Definition
Context
Market touch points/implications
BROADER MARKET ENVIRONMENT
Interest rate rises may mean tougher times ahead
Figure 1: Bank of England base rates, 1990-2006
Rising unemployment might contribute to more cautious sentiment
Figure 2: Size of the total workforce and the proportions unemployed and self-employed, 2000-11
Savings set to increase over the coming years
Figure 3: PDI, consumer expenditure, savings and savings ratio, 2000-11
Unsecured lending falls to pre-2000 levels
Figure 4: Total gross securd and unsecured lending, 2000-06
INTERNAL MARKET ENVIRONMENT
What makes consumers take out loans?
Figure 5: Main reasons for arranging (most recent) loan, October 2005
Debt problems continue to grow
The number of IVAs continues to rise sharply
Figure 6: Number of individual bankruptcy orders and IVAs (England and Wales), Q1 2004-Q3 2006
More aggressive advertising for debt management companies
Figure 7: Advertising expenditure on debt management services, 2001/02-2005/06
PPI: the beginning of the end?
COMPETITIVE CONTEXT
Credit cards
Figure 8: Credit cards: number in issue, total annual transaction volumes and value, 2000-05
Overdrafts
Figure 9: Overdraft advances (MBBG only), 2000-05
1.9 million adults owed money on a student loan in 2006
Figure 10: Student loan take-up, 1990/91-2004/05
STRENGTHS AND WEAKNESSES IN THE MARKET
Less of an appetite for borrowing
Greater data sharing might help to combat bad debt
WHO’S INNOVATING?
Using innovation to gain a leading edge
Cashback loans
Moneyback Bank
Figure 11: Annual moneyback payment, according to loan size
Nationwide
Figure 12: Cashback examples, Nationwide, 2006
It’s all about speed
Convenience and flexibility also matter
 OTHER INNOVATIONS
Zopa.com
TRADE PERSPECTIVE
Product opportunities
Distribution
Present and future challenges
Stemming the rise of IVAs
MARKET SIZE AND FORECAST
3.8 million adults have a personal unsecured loan
Figure 13: Estimated number of consumers with an outstanding balance on lending products, September 2006
Lending on loans is expected to drop for the second consecutive year
Figure 14: Consumer credit gross lending, by product category, 2000-06
The value of secured loans has tripled since 2000
Figure 15: Other secured lending as a proportion of gross secured lending (approvals), 2000-06
The UK’s personal loans market was worth an estimated £83 million in 2006
Figure 16: Gross lending on unsecured and secured personal loans, 2000-06
The personal loan market is expected to grow by 19% by 2011
Figure 17: Forecast of personal loan market, by sector, 2006-11
MARKET SHARE
Lloyds TSB is the leading provider of personal loans
Figure 18: Where loan holders arranged their most recent loan, September 2006
The ‘big five’ cater for half of the market
Figure 19: Where loan holders arranged their most recent loan, by type of organisation, September 2006
COMPANIES AND PRODUCTS
Smaller providers tend to offer more competitive rates
Figure 20: Repayment terms for selected unsecured loans of £3,000 over 36 months, by APR*, November 2006
A diversity of players operate in this market…
…although the banks have the largest share
Figure 21: Top five major British banking groups and their (selected) subsidiaries, 2006
New entrants
BRAND COMMUNICATION AND PROMOTION
Adspend on personal loans accounts for 15% of all adspend on financial services
Figure 22: Advertising expenditure on financial services, 2001/02-2005/06
More than half of adspend in this sector was dedicated to promoting unsecured personal loans
Figure 23: Advertising expenditure on personal loans, by sub-category, 2001/02-2005/06
Loans.co.uk is the leading advertiser
Figure 24: Top ten advertisers of personal loans, 2001/02-2005/06
Over half of adspend was dedicated to direct mail
Figure 25: Advertising expenditure on personal laons, by media type, 2005/06
CHANNELS TO MARKET
More people are arranging loans via remote channels
Figure 26: Use of remote channels in arranging a loan, 2005 and 2006
Many turn to the Internet for information
Figure 27: Websites browsed and purchased from, by type of financial product, 2002-06
CONSUMER FINANCIAL ACTIVITY
A quiet Christmas and New Year for providers
Activity levels look set to drop sharply
Figure 28: Savings, investment, borrowing and debt repayment – consumers’ expected activity, June 2005-September 2006
UK savings and spending climate
Figure 29: UK savings and spending climate – indexed, January 2001-October 2006
Subdued picture across all sub-groups
Figure 30: Expected financial activity, by socio-demographic and income groups, September 2006 and average for the last 19 quarters
Only ISA and life business will hold up
Figure 31: Leading financial activities planned in the next six months, September 2005-September 2006
Property intentions may be hit by the rate rise
Figure 32: Intended mortgage and property purchase activity, September 2004-September 2006
Identifying main financial services providers
Bank of Scotland and Halifax customers will be the busiest
Figure 33: Activity levels of main financial services providers’ customer bases, September 2006
NatWest and Barclays customers are looking to repay debt
Figure 34: Activity intentions and current household financial situation, by MFSP, September 2006
THE CONSUMER: PRODUCT OWNERSHIP
One in four adults owe money on a credit card
Figure 35: Loan ownership, September 2006
Implications and opportunities
Younger consumers tend to borrow on bank overdrafts
Figure 36: Proportion of adults owing money on lending products, by gender, age and socio-economic group, September 2006
Implications and opportunities
Working status has an impact on loan eligibility
Figure 37: Proportion of adults owing money on lending products, by working status, gross annual household income and tenure, September 2006
Implications and opportunities
More than half of consumers do not owe money on any lending product
Figure 38: Number of lending products on which consumers owe money (mortgages excluded), September 2006
Implications and opportunities
The over-65s are not big on borrowing
Figure 39: Number of lending products on which consumers owe money, by gender, age and socio-economic group, September 2006
Implications and opportunities
Half of unsecured loan holders also owe money on a credit card
Figure 40: Proportion of adults owing money on lending products, by other products owned, September 2006
Implications and opportunities
Credit card borrowers also appear to be diligent savers
Figure 41: Number of savings products owned, by the type of lending product on which money is owed, September 2006
Implications and opportunities
THE CONSUMER: PURCHASING ACTIVITY
One in three consumers shop around before taking out a loan
Figure 42: Loan arranging behaviour, 2005 and 2006
Implications and opportunities
Those shopping for cheap rates turn to smaller providers
Figure 43: Loan arranging behaviour, by type of loan company, September 2006
Implications and opportunities
Most consumers blame the banks
Figure 44: ‘It is the banks’ responsibility not to lend people more than they can afford to pay back’, September 2006
Implications and opportunities
The over-65s overwhelmingly hold the banks responsible
Figure 45: ‘It is the banks’ responsibility not to lend people more than they can afford to pay back’, by gender, age and socio-economic group, September 2006
Implications and opportunities
Even active borrowers refuse to accept responsibility
Figure 46: ‘It is the banks’ responsibility not to lend people more than they can afford to pay back’, by repertoire of lending products (excluding mortgages), September 2006
Implications and opportunities
Borrowing activity will probably not pick up over the next two years
Figure 47: ‘I do not anticipate having to borrow money in the next two years’, September 2006
Implications and opportunities
Who is most likely to need to borrow money?
Figure 48: ‘I do not anticipate having to borrow money in the next two years’, by gender, age and socio-economic group, September 2006
Implications and opportunities
The more affluent are more likely to borrow money
Figure 49: ‘I do not anticipate having to borrow money in the next two years’, by workiing status, gross annual household income and tenure, September 2006
People already in debt seem to be the most likely to need to borrow more money
Figure 50: ‘I do not anticipate having to borrow money in the next two years’, by repertoire of lending products (excluding mortgages), September 2006
Implications and opportunities
Current account providers clearly have a competitive advantage
Figure 51: ‘If I needed a loan, I would probably go first to my current account provider’, September 2006
Implications and opportunities
Are 25-34s the most savvy?
Figure 52: ‘If I needed a loan, I would probably go first to my current account provider’, by gender, age and socio-economic group, September 2006
Implications and opportunities
Where would people who already owe money go for a loan?
Figure 53: ‘If I needed a loan, I would probably go first to my current account provider’, by working status, gross annual household income and tenure, September 2006
Implications and opportunities
THE CONSUMER: TYPOLOGIES
Half of consumers claim to never buy goods on credit
Figure 54: Attitudes towards borrowing, September 2006
Implications and opportunities
Debt typologies
Two in five ABs are Prudent Borrowers
Figure 55: Credit typologies, by gender, age and socio-economic group, September 2006
Implications and opportunities
Retirees are the most likely to shun credit
Figure 56: Credit typologies, by working status, gross annual household income and tenure, September 2006
The Possibly Problematic are the heaviest borrowers
Figure 57: Typologies, by lending products on which money is owed, September 2006
Implications and opportunities
Who uses the most forms of credit?
Figure 58: Number of lending products on which money is owed, by typologies, September 2006
Implications and opportunities
Are the Prudent Borrowers also sophisticated investors?
Figure 59: Savings and investment products owned, by credit typologies, September 2006
The Prudent Borrowers are also keen on saving
Figure 60: Credit typologies, by the number of saving and investment products owned, September 2006
Implications and opportunities
Even ‘savvy’ borrowers would turn first to current account provider for a loan
Figure 61: Attitudes towards borrowing money, by typologies, September 2006