Personal Loans - UK - January 2014

INTRODUCTION
Report scope
Abbreviations
EXECUTIVE SUMMARY
The market
Strong growth seen in personal loans market in 2013
Figure 1: Forecast of personal loans industry revenue – fan chart, 2008-18
Large growth in unsecured lending
Figure 2: Gross unsecured lending, by product type, 2008-13
Market factors
Consumer confidence reflects economic recovery
Figure 3: Consumer confidence barometer trend – UK, January 2010-November 2013
Below-inflation wage rises squeeze household incomes
Figure 4: Annual change in average weekly earnings, CPI and RPI, 2007-13
Tighter regulation for alternative lenders
Companies, products and innovations
Niche loan sectors have given rise to new market entrants
Innovation focused on improved online services
Advertising dominated by payday lenders
The consumer
Personal loans are the fourth most commonly held form of credit
Figure 5: Types of loans and credit currently owned, November 2013
Recently arranged loans show increase in consumer appetite for credit
Figure 6: Period of time that loan owners have held their most recent loan for, November 2013
Personal loans are used for one-off purchases and debt consolidation
Figure 7: Reasons for taking out most recent loan product, November 2013
Over a quarter of consumers could take a loan in the next year
Figure 8: Likelihood of taking out a loan product in the next 12 months, November 2013
Face to face is the most used method of arranging a loan
Figure 9: Methods used by loan owners to arrange their most recent loan, November 2013
42% of loans were taken with consumers’ main bank
Figure 10: Behaviours affecting loan application, November 2013
Consumers favour online services to gain control over their loans
Figure 11: Consumer appetite for different loan features, November 2013
What we think
ISSUES AND INSIGHTS
Who is going to fill the gap for less creditworthy consumers?
The issues
The implications
Consumers are increasingly favouring online loan applications
The issues
The implications
Existing loan holders are the most likely purchasers of future loans
The issues
The implications
People want to take control of their loan borrowing
The issues
The implications
TREND APPLICATION
Consumers are wary of taking personal loans, despite their positive uses
Online has become the primary channel to market for personal loans
Consumer demands push personal loans towards a digital future
MARKET DRIVERS
Key points
Consumer confidence boosts prospects of future lending growth…
Figure 12: Consumer confidence barometer trend – UK, January 2010-November 2013
…but most people remain wary about taking out loan products in the next year
Figure 13: Likelihood of taking a loan product in the next 12 months, November 2013
Increased employment is good news for lenders
Figure 14: Employment rate (aged 16-64), seasonally adjusted, July 2010-September 2013
Prices continue to rise quicker than earnings
Figure 15: Annual change in average weekly earnings, CPI and RPI, 2007-13
Low rates still viable for lenders
Figure 16: Effective rate on personal loans, three-month LIBOR, and base rate, 2007-13 (monthly)
Figure 17: Quoted household interest rates for personal loans of £5K and £10K, January 2007-November 2013
Major drop in unsecured write-offs
Figure 18: Quarterly write-offs of lending to individuals, by sector, 2007-13
Regulatory changes
Authorisation process
Payday loan companies face tougher rules
Greater protection for peer-to-peer lenders
COMPETITOR PRODUCTS
Key points
Overall unsecured lending sees double-digit growth
Figure 19: Gross consumer credit lending, by type, 2008-13
Significant increase in net unsecured lending
Figure 20: Net value of consumer credit lending, by type, 2008-13
Increase in mortgage lending fails to stimulate secured loan market
Figure 21: Gross secured lending to individuals, 2008-13
MARKET SWOT ANALYSIS
Figure 22: Personal loans market – SWOT analysis, 2014
WHO’S INNOVATING?
Key points
The need to innovate
Development in digital media
Adoption of soft searches
Repayment holidays and payment waiver may be set to replace PPI
Growth of niche market between payday and traditional loan products
MARKET SIZE AND FORECAST
Key points
Sustained growth in personal loan advances
Figure 23: New gross unsecured loan advances – MBBG and total market, 2008-13
Market forecast
Personal loans market expected to almost double in five years
Figure 24: Forecast of the value of unsecured personal loans, by gross advances, fan chart, 2008-18
Figure 25: Forecast of the value of unsecured personal loans, by gross advances, at current and constant prices, 2008-18
Forecast methodology
Fan chart explanation
MARKET SHARE
Key points
Lloyds Banking Group is the UK’s largest personal loan lender
Figure 26: Value of outstanding unsecured consumer lending (UK), by selected providers, 2011 and 2012
Strategic drop in Santander’s loan lending
Supermarket lenders perform well against the banks
COMPANIES AND PRODUCTS
Barclays
Company background
Relevant brands and subsidiaries
Loan product range
Recent financial performance
Figure 27: Interim financial data (adjusted) for Barclays UKRBB, Q3 2012 and Q3 2013
Recent activity
Grupo Santander
Company background
Loan product range
Recent financial performance
Figure 28: Interim financial data for Santander UK plc Retail Banking, Q3 2012 and Q3 2013
Recent activity
HSBC
Company background
Relevant brands and subsidiaries
Loan product range
Recent financial performance
Figure 29: Annual financial data for HSBC Bank plc retail banking, 2011 and 2012
Recent activity
Lloyds Banking Group
Company background
Relevant brands and subsidiaries
Loan product range
Recent financial performance
Figure 30: Interim management statement for Lloyds Banking Group plc, Q3 2012 and Q3 2013
Recent activity
Nationwide
Company background
Relevant brands and subsidiaries
Loan product range
Recent financial performance
Figure 31: Annual financial data for Nationwide, 2012 and 2013
Recent activity
RBS Group
Company background
Relevant brands and subsidiaries
Loan product range
Recent financial performance
Figure 32: Interim financial data for RBS Group, Q3 2012 and Q3 2013
Recent activity
Wonga
Company background
Relevant brands and subsidiaries
Loan product range
Recent financial performance
Figure 33: Annual financial data for Wonga Group limited, 2011 and 2012
Recent activity
Zopa
Company background
Loan product range
Recent financial performance
Figure 34: Annual accounts of Zopa, 2011 and 2012
Recent activity
Sainsbury’s Bank
Company background
Loan product range
Recent financial performance
Figure 35: Annual financial statement for Sainsbury’s Bank plc, 2011 and 2012
Recent activity
Tesco Bank
Company background
Loan product range
Recent financial performance
Figure 36: Interim financial report for Tesco Personal Finance plc, H1 2012 and H1 2013
Recent activity
BRAND COMMUNICATION AND PROMOTION
Key points
Payday lenders continue heavy advertising spend
Figure 37: Advertising expenditure on structured loan products, 2009-13
Large push in spending from Amigo Loans
Figure 38: Top 15 spenders on advertising in the personal loans market, 2011-13
Television is the dominant advertising channel for loans
Figure 39: Advertising expenditure on unsecured loans (inc. payday loans), by media type, 2011-13
Online advertising continues to decline
Non-payday lenders turn to the press
Figure 40: Advertising expenditure on unsecured loans, by media type, 2011-13
LOAN AND CREDIT PRODUCT OWNERSHIP
Key points
Personal loans are the fourth most widely held form of credit
Figure 41: Types of loans and credit currently owned, November 2013
Loan ownership is higher among 25-54-year-olds
Figure 42: Unsecured loan ownership, by age, November 2013
Personal loans are more likely to be held by above-average earners…
…but ownership is also higher than average among the financially stretched
Loan ownership is more prevalent among multiple credit holders
Figure 43: Types of loans and credit currently owned, by number of types of loans and credit products currently owned, November 2013
Period of loan ownership
Some 66% of most recent loans were taken out in the last two years
Figure 44: Period of time that loan owners have held their most recent loan for, November 2013
REASONS FOR LOAN OWNERSHIP
Key points
Most loans pay for one-off purchases
Figure 45: Reasons for taking out most recent loan product, November 2013
Debt consolidation is less prevalent, while car purchases have increased
Figure 46: Reason for loan ownership, by period of time most recent loan held for, November 2013
Debt consolidation still the most prevalent reason for new loans among personal loan holders
Figure 47: Reasons for taking out most recent loan product, by selected types of loans and credit currently owned, November 2013
LIKELIHOOD TO ARRANGE LOAN IN NEXT 12 MONTHS
Key points
Most consumers are unlikely to take a loan in the next year
Figure 48: Likelihood of taking out a loan product in the next 12 months, November 2013
Current loan holders more likely to borrow again in next 12 months
Figure 49: Likelihood of taking out a loan product in the next 12 months, by types of loans and credit currently owned, November 2913
Most likely loan purchasers have held their current loan for one to two years
Figure 50: Likelihood of taking out a loan product in the next 12 months, by period of time that loan owners have held their most recent loan for, November 2013
METHODS OF ARRANGING LOANS
Key points
Over a third of loans still arranged in person
Figure 51: Methods used by loan owners to arrange their most recent loan, November 2013
Equal use of online and offline application methods…
Figure 52: Methods used by loan owners to arrange their most recent loan, by selected types of loans and credit currently owned, November 2013
…except when applying for a car loan
Online applications have increased over time
Figure 53: Methods used by loan owners to arrange their most recent loan, by period of time that loan owners have held their most recent loan for, November 2013
RESEARCH AND LOAN SELECTION
Key points
Less than a quarter of loan holders undertook online research
Figure 54: Behaviours affecting loan application, November 2013
Men and the young are more likely to research loans online
Figure 55: Percentage of loan holders who researched their loan online, by gender and age, November 2013
High proportion of borrowing from main bank
Figure 56: Behaviours affecting loan application, by types of loans and credit currently owned, November 2013
CONSUMER APPETITE FOR DIFFERENT LOAN FEATURES
Key points
Consumers want to be in control of their loan product
Figure 57: Consumer appetite for different loan features, November 2013
Balancing the need to advise and the convenience of online channels
Loan holders want quick, easy applications and access to cash
Figure 58: Factors affecting possible loan purchase, by most selected types of loans and credit currently owned, November 2013
Prospective loan buyers demand digital environment
Figure 59: Factors affecting possible loan purchase, by likelihood of purchasing a loan product in the next 12 months, November 2013
APPENDIX – MARKET SIZE AND FORECAST
Figure 60: Best- and worst-case forecast of the value of unsecured personal loans, by gross advances, 2013-18
APPENDIX – LOAN AND CREDIT PRODUCT OWNERSHIP
Figure 61: Most popular types of loans and credit currently owned, by demographics, November 2013
Figure 62: Next most popular types of loans and credit currently owned, by demographics, November 2013
Figure 63: Other types of loans and credit currently owned, by demographics, November 2013
Figure 64: Period of time that loan owners have held their most recent loan for, by demographics, November 2013
APPENDIX – REASONS FOR LOAN OWNERSHIP
Figure 65: Most popular reasons for loan ownership, by demographics, November 2013
Figure 66: Next most popular reasons for loan ownership, by demographics, November 2013
APPENDIX – LIKELIHOOD TO ARRANGE LOAN IN NEXT 12 MONTHS
Figure 67: Likelihood of purchasing a loan product in the next 12 months, by demographics, November 2013
APPENDIX – METHODS OF ARRANGING LOAN
Figure 68: Most popular methods used by loan owners to arrange their most recent loan, by demographics, November 2013
Figure 69: Next most popular methods used by loan owners to arrange their most recent loan, by demographics, November 2013
APPENDIX – RESEARCH AND LOAN SELECTION
Figure 70: Most popular behaviours affecting loan application, by demographics, November 2013
Figure 71: Most popular behaviours affecting loan application, by demographics, November 2013 (continued)
Figure 72: Next most popular behaviours affecting loan application, by demographics, November 2013
APPENDIX – CONSUMER APPETITE FOR DIFFERENT LOAN FEATURES
Figure 73: Consumer appetite for different loan features, by demographics, November 2013
Figure 74: Consumer appetite for different loan features, by demographics, November 2013 (continued)
Figure 75: Consumer appetite for different loan features, by demographics, November 2013
Figure 76: Consumer appetite for different loan features, by demographics, November 2013 (continued)