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Personal Loans - UK - December 2007

ISSUES IN THE MARKET
Key issues
Abbreviations
INSIGHTS AND OPPORTUNITIES
Loans with a variable monthly repayment
Rewarding for customers with a good repayment history
Linked consumer credit products
Responsible lending and consumer education
MARKET IN BRIEF
The size of the personal loans market and other forms of borrowing
Figure 1: Estimated lending on unsecured personal loans, 2001-07
The big high street banks dominate the market
Figure 2: Personal loan market share by provider type, August 2007
Adspend in decline
High levels of consumer debt
Figure 3: Number of individual bankruptcy orders and IVAs in England and Wales (not seasonally adjusted), Q1 2004-Q2 2007
The potential loss of income from PPI
The impact of the ‘credit crunch’
Figure 4: Loan acceptance rates, Apr 2007-Oct 2007
Weaker consumer appetite for debt
Figure 5: Debt repayment, borrowing and net debt repayment, Sep 2002-Sep 2007
Some interesting trends exist regarding product ownership…
Figure 6: Consumer credit ownership, by lifestage, August 2007
… as well as consumer attitudes towards debt
FAST FORWARD TRENDS
Trend 1: Over-optioned consumers
Trend 2: The return of the philanthropic feel-good factor
INTERNAL MARKET ENVIRONMENT
Key points
Debt problems are still a major concern…
…making them a high-profile subject in the media
Consumer bodies report growing problems…
…although insolvency figures dipped in 2007
Figure 7: Number of individual bankruptcy orders and IVAs in England and Wales (not seasonally adjusted), Q1 2004-Q2 2007
Changing legislation for those with debt problems
Debt management companies have a large part to play
Figure 8: Advertising expenditure for debt management services, H1 200-H1 2007
The government is taking action
PPI under increasing scrutiny
CAB, OFT and FSA investigating the market
BROADER MARKET ENVIRONMENT
Key Points
Rising interest rates are likely to inflate loan rates
Figure 9: Bank of England base rate, 1997-2007
The population of people employed in the UK is rising
Figure 10: Size of total workforce and proportions employed, self-employed and unemployed, 2002-12
High disposable income and consumer spending fuels borrowing
Figure 11: PDI, consumer expenditure, savings and savings ratio (at current prices), 2002-12
A booming economy merely stoked the fire
And what about the impact of the global credit crunch?
Loan acceptance rates fall
Figure 12: Loan acceptance rates, Apr 2007-Oct 2007
Some lenders are leaving the market
CONSUMER FINANCIAL ACTIVITY
Key Points
Background
Consumer confidence at a major low point
Figure 13: Rolling monthly, 3-monthly and yearly UK consumer confidence indices, Jan 2000-Sep 2007
Employment prospects look favourable
Figure 14: Unemployment expectations and job availability, Jan 2006-Sep 2007
Changing consumer intentions towards spending and saving
Figure 15: Intentions to save and spend in the next 12 months*, Jan 2001-Sep 2007
Consumers are generally becoming less financially active…
Figure 16: Expected consumer activity in savings and investments, borrowing, and debt repayment, Mar 2006-Sep 2007
… with debt repayment showing a significant decline since mid-2004
Figure 17: Debt repayment, borrowing and net debt repayment, Sep 2002-Sep 2007
Intended consumer credit activity has dropped significantly
Figure 18: Intended consumer credit activities, Q3/Q4 2002-Q3/Q4 2007
The younger generation and low-income groups are less inclined to pay off existing debts
Figure 19: Debt repayment intentions, by age and socio-economic groups, 2005-07
COMPETITIVE CONTEXT
Key Points
Credit cards
Figure 20: Credit cards: number of cards in issue, total and average annual transaction volumes and value, 2000-06
Overdrafts
Figure 21: Overdraft advances to individuals and individual trusts (MBBG only), 2001-06
Housing equity withdrawal
Figure 22: Housing equity withdrawal and housing equity withdrawl as a proportion of post-tax income (seasonally adjusted), Q1 2002-Q2 2007
STRENGTHS AND WEAKNESSES IN THE MARKET
Strengths in the market
An open market with high consumer choice
Data sharing means better risk profiling
High cross-selling potential
More responsible consumers
Weaknesses in the market
High level of bad debts
Weaker consumer appetite for borrowing
Possible loss of income from PPI
Banks tightening their lending criteria
The sustainability of price-based competition
WHO’S INNOVATING?
Key Points
Is there scope for innovation in the personal loans market?
Cashback… that old chestnut!
Moneyback Bank
Figure 23: Annual moneyback payment, according to loan size
Barclays
Loan top-ups becoming commonplace
Switching incentives extended to personal loans
…and then there are price matching guarantees
Speed is of the essence…
The importance of convenience and flexibility
Zopa – a different concept altogether
TRADE PERSPECTIVE
Pricing in the marketplace
The role of branding
Possible outcome of the PPI investigation
Cross-selling difficulties?
The aggregators’ influence
The impact of high levels of consumer debt…
… and the global credit crunch
What about the future?
MARKET SIZE AND FORECAST
Key Points
An estimated 5 million adults in the UK have a personal loan
Figure 24: Consumer credit ownership, August 2007
At the highest level, total gross unsecured lending is down
Figure 25: Total gross unsecured consumer lending, 2000-07
At product level, the demand for personal loans has fallen…
Figure 26: Total gross unsecured consumer lending split by product category, 2001-07
… with three years of decline
Figure 27: Estimated lending on unsecured personal loans, 2001-07
What does the future look like for personal loans?
Market forecast for unsecured personal loans
Figure 28: Forecast of total gross unsecured consumer lending split by product category, 2002-12 based on current prices
Factors used in this forecast
MARKET SHARE
Key Points
Lloyds TSB still has the dominant share of the personal loans market
Figure 29: Personal loan market share by company, August 2007
The top 5 banks still dominate the market
Figure 30: Personal loan market share by provider type, August 2007
COMPANIES AND PRODUCTS
Key Points
To offset a weaker brand image, smaller providers tend to offer more competitive rates
Figure 31: Repayment terms for selected unsecured personal loans of £5,000 over 3 years, sorted by APR, September 2007
Personal pricing blurs comparisons
A diversity of players operate in this market
The big banks have a number of subsidiary brands
Figure 32: Top five MBBG companies and selected subsidiaries that offer undecured personal loans, 2007
Historic market prosperity has attracted (fairly) new entrants
BRAND ELEMENTS
 BRAND MAP
Figure 33: Attitudes and usage of personal loan brands, October 2007
 LLOYDS TSB
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 34: Attitudes towards Lloyds TSB, October 2007
 LOMBARD DIRECT
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 35: Attitudes towards Lombard Direct, October 2007
 SMILE.CO.UK
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 36: Attitudes towards Smile.co.uk, October 2007
 POST OFFICE
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 37: Attitudes towards Post Office, October 2007
 OCEAN FINANCE
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 38: Attitudes towards Ocean Finance, October 2007
 FREEDOM FINANCE
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 39: Attitudes towards Freedom Finance, October 2007
 NORTON FINANCE
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 40: Attitudes towards Norton Finance, October 2007
 YES LOANS
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 41: Attitudes towards Yes Loans, October 2007
 THE AA
Brand background
What the brand is trying to achieve
What consumers think?
Performance indicators:
Figure 42: Attitudes towards the AA, October 2007
BRAND COMMUNICATION AND PROMOTION
Key Points
Personal loans is the third-largest advertising sector in financial services
Figure 43: Advertising expenditure on different financial services products, 2003/04-2006/07
Adspend on secured personal loans has overtaken expenditure on unsecured loans for the first time
Figure 44: Advertising expenditure on different types of personal loan, 2003/04-2006/07
Share of voice differs between secured and unsecured lenders
Figure 45: Top ten advertisers of secured and unsecured personal loans, 2003/04-2006/07
Unsecured loan providers use direct mail to attract customers whilst secured loan providers advertise on television
Figure 46: Advertising expenditure on secured and unsecured personal loans by media type, Jul 2006-Jun 2007
CHANNELS TO MARKET
Key Points
The Internet has proven to be a powerful consumer research tool as well as an increasingly popular channel of arrangement
Figure 47: Websites browsed for information purposes with a view to possibly buying and actually purchased from in the last three months (financial products only), Nov 2002-Jul 2007
Growing use of direct channels to arrange a loan
Different channels adopt a different pricing strategy
Aggregators are a highly influential force in the market…
Figure 48: Advertising expenditure of a selection of major financial price comparison websites, 2003/04-2006/07
… but the industry has been criticised recently over its ‘impartiality’
THE CONSUMER: PRODUCT OWNERSHIP
Key Points
About Mintel’s consumer research
Credit cards still the most popular consumer credit product
Figure 49: Consumer credit ownership, August 2007
Men are the credit kings
Figure 50: Consumer credit ownership, by gender, August 2007
Live hard, die young… and keep on borrowing
Figure 51: Consumer credit ownership, August 2007
Insights and opportunities
Families with affordability issues?
Figure 52: Consumer credit ownership, by lifestage, August 2007
Middle income groups looking for lifestyle enrichment
Figure 53: Consumer credit ownership, August 2007
Major high street banks still dominate the market
Figure 54: Personal loan* market share by type of lender, August 2007
Shifting loan patterns?
THE CONSUMER: ATTITUDES TOWARDS DEBT
Key Points
A more cautious outlook towards spending…
Figure 55: Attitudes towards borrowing and saving, August 2007
… with little difference between affluence or gender...
Figure 56: Attitudes towards borrowing/saving, by gender and socio-economic group, August 2007
… but a considerable difference in the attitude of older people
Figure 57: Attitudes towards borrowing and saving by age group, August 2007
And some additional trends
Current account providers are in a strong position…
Figure 58: Loan arrangement through current account provider, August 2007
… especially when it comes to younger customers
Figure 59: Loan arrangement through current account provider, by age, August 2007
Middle-income earners are also likely to turn to their bank for a loan
Figure 60: Loan arrangement through current account provider, by gross annual household income and newspaper readership, August 2007
Consumers in-the-know about payment protection insurance
Figure 61: Consumer awareness of payment protection insurance mis-selling allegations, August 2007
Women less informed… so too are the young and the elderly
Figure 62: Consumer awareness of payment protection insurance mis-selling allegations by gender and age, August 2007
The link between age and affluence
Figure 63: Consumer awareness of payment protection insurance mis-selling allegations, by combined age and socio-economic group splits, August 2007
THE CONSUMER: TARGETING OPPORTUNITIES
Key Points
Consumer attitudes towards debt
Figure 64: Consumer attitudes towards debt and consumer credit products, August 2007
Few feel they are in serious financial difficulty
Women and older people are ‘loan averse’
Figure 65: Likelihood of needing a loan, by age and gender, August 2007
Demographics of those in the potential market for a loan
Figure 66: Profile of people who are in the potential market for a loan, by age, gender, socio-economic group and gross annual household income, August 2007
Families are hot prospects
Figure 67: Lifestage of people who are in the potential market for a loan, August 2007
Consumers in the ‘potential market’ for a loan are especially price-sensitive
Which consumers are the most price-sensitive?
Who are most comfortable with their credit-related obligations?
Payment protection – who’s interested?
The highly segmented role of aggregators
Defining the struggling borrowers and non-savers
Refusal of consumer credit is not confined to a specific segment
Wealthy families are more likely to respond to direct mail
The in-market crowd – young, single and not doing badly
Cross-selling opportunities may exist for credit card owners and those with a specialist car loan/finance plan
Figure 68: Cross-holdings of different types of consumer credit products (with an outstanding balance), August 2007
Almost two in ten consumers have multiple types of outstanding consumer credit
Figure 69: Consumer groupings based of the number of different types of credit held (with an outstanding balance), August 2007
Consumers with multiple forms of consumer credit, are likely to owe money on credit cards, unsecured loans and overdrafts
Figure 70: Consumer groupings based of the number of different types of credit held, by type of consumer credit holding, August 2007
More indebted consumers tend to be more rate-sensitive and more accustomed to using price comparison sites
Figure 71: Consumer groupings based of the number of different types of credit held, by attitudes towards debt and personal loans, August 2007
Those that have just ‘started out’ on their mature life phase are more likely to have multiple types of outstanding credit
Figure 72: Demographic analysis of consumers based of the number of different types of consumer credit held, August 2007
Consumer typologies – background and definitions
Background
Definitions
Mintel estimates that 12 million people in the UK could be described as ‘struggling borrowers’
Figure 73: Consumer typologies based on consumer credit ownership and attitudes towards borrowing and personal loans, August 2007
Figure 74: Average number of consumer credit products held (with an outstanding balance) by consumer typology, August 2007
Confident borrowers are more likely to refuse PPI and use price comparison sites
Figure 75: Attitudes and beliefs of customers, by consumer typology, August 2007
Confident borrowers have a higher tendency towards multiple consumer credit ownership
Figure 76: Ownership of multiple types of credit, by consumer typology, August 2007
Summary of attitudes and demographics of the four consumer groups
Attitudes and beliefs of ‘confident borrowers’
Demographic profile of ‘confident borrowers’
Attitudes and beliefs of ‘struggling borrowers’
Demographic profile of ‘struggling borrowers’
Attitudes and beliefs of those ‘potentially interested in a loan’
Demographic profile of those ‘potentially interested in a loan’
Attitudes and beliefs of those ‘not interested in a loan’
Demographic profile of those ‘not interested in a loan’
APPENDIX
Product ownership
Figure 77: Consumer credit ownership, by demographic characteristics, August 2007
Attitudes towards borrowing and saving
Figure 78: Attitudes towards borrowing and saving, by demographic characteristics, August 2007
Channel of loan arrangement
Figure 79: Loan arrangement through current account provider, by demographic characteristics, August 2007
Awareness of PPI mis-selling
Figure 80: Awareness of PPI mis-selling allegations, by demographic characteristics, August 2007
Attitudes towards loans and borrowing in general
Figure 81: Consumer attitudes towards loans and borrowing in general, by demographic characteristics, August 2007, (part 1 of 2)
Figure 82: Consumer attitudes towards loans and borrowing in general, by demographic characteristics, August 2007, (part 2 of 2)
Consumers potentially in the market for a loan
Figure 83: Consumers who are in the potential market for a loan, by demographic characteristics, August 2007
Figure 84: Attitudes of consumers who are in the potential market for a loan, August 2007
Figure 85: Attitudes of consumers who are in the potential market for a loan, by demographic characteristics, August 2007, (part 1 of 2)
Figure 86: Attitudes of consumers who are in the potential market for a loan, by demographic characteristics, August 2007, (part 2 of 2)
Consumer typologies
Figure 87: Consumer typologies based on consumer credit ownership and attitudes towards borrowing and personal loans, by demographic characteristics, August 2007

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