Unsecured Personal Loans - UK - December 2008

ISSUES IN THE MARKET
Key issues
 ABBREVIATIONS
INSIGHTS AND OPPORTUNITIES
Making more of loans with a purpose
Increasing penetration amongst ABs and C2s
Selling loans in a difficult environment
Targeting the new borrower
MARKET IN BRIEF
Economic conditions stifle market
Secured borrowing is a real alternative to a loan
Gross lending on unsecured loans to 20% in 2008
Figure 1: Estimated gross lending for unsecured personal loans, 2003-08
Lloyds TSB is the market leader
Adspend on personal loans has declined markedly
Figure 2: Personal loan advertising expenditure, by sector, 2005/06-2007/08
One in twelve people has an unsecured personal loan
Figure 3: Outstanding consumer credit ownership, Sep’ 2008
People are cutting back in the wake of economic downturn
FAST FORWARD TRENDS
 TREND 1: BOOM COMES TO AN END
Consumers are cutting back…
…which is bad news for the economy and lenders?
 TREND 2: FINANCE IN FLUX
Consumers are to blame as much as lenders
Every cloud has a silver lining
INTERNAL MARKET ENVIRONMENT
Key points
A more cautious approach towards lending
The new Banking Code
Revenue from PPI sales is likely to be hit
Liquidity issues are still a problem…
…although the government has intervened
Lenders have increased rates on personal loans…
Figure 4: Average personal loan rates, Oct 2007 and Oct 2008
…and some have exited the market altogether
Bad debts are likely to rise…
Figure 5: Individual insolvencies in England and Wales (seasonally adjusted), Q1 2002-Q3 2008
…causing providers to tighten their lending criteria
BROADER MARKET ENVIRONMENT
Key points
Economic conditions are worsening…
…and some families are starting to struggle
House prices continue to fall
Figure 6: Average UK house prices, Jan 2007-Sep 2008
The Bank of England has slashed interest rates
Figure 7: Base rate, Jan 2000-Jul 2008
Unemployment concerns are starting to mount
An ageing population is not good news for lenders
Figure 8: UK population, by lifestage, 2003-13
Increasing regulation and consumer education
COMPETITIVE CONTEXT
Key points
Overdraft lending has remained flat since 2005
Figure 9: Overdraft advances to individuals and individual trusts (MBBG only), 2002-07
Borrowing on credit cards may start to rise
Figure 10: Total gross lending and net amounts outstanding on credit card lending (seasonally adjusted), Jan 2003-Sep 2008
Housing equity withdrawal has declined sharply
Figure 11: Housing equity withdrawal (seasonally adjusted), Q1 2003-Q2 2008
Secured loans and further advances are other alternatives
Figure 12: Size of the secured lending market, by sector and gross advances, 2003-07
STRENGTHS AND WEAKNESSES IN THE MARKET
Market strengths
A relatively simple product
Margins are good at present
The dawn of an era of more responsible lending
Safer than secured borrowing
Market weaknesses
Stricter lending criteria
Potential loss of revenue from PPI sales
Consumers are tightening their belts
Bad debts are likely to rise
WHO’S INNOVATING?
Key points
A low-innovation market…
…centred around convenience and flexibility
An interesting slant from Lloyds TSB
Community lending – the birth of Zopa
TRADE PERSPECTIVE
Consumers are more value-orientated now…
…which is partly because of aggregators
The lending market has dried up…
…which has polarised the market
Loan rates have increased
Feelings are mixed on the subject of PPI
Despite the current turmoil in the market, it does have a future
MARKET SIZE AND FORECAST
Key points
Total unsecured lending has declined since 2004
Figure 13: Total unsecured gross lending (monthly data, seasonally adjusted), Jan 2003-Sep 2008
Non-credit card lending has decreased sharply since mid-2007
Figure 14: Total gross lending and net amounts outstanding of non-credit card consumer credit lending* (monthly data, seasonally adjusted), Jan 2003-Sep 2008
Lending on unsecured personal loans is declining…
Figure 15: Gross lending on structured personal loans (monthly data, seasonally adjusted) (MBBG only), 2007 vs 2008
…with total gross lending expected to fall sharply in 2008
Figure 16: Estimated gross lending for unsecured personal loans, 2003-08
 MARKET FORECAST
Figure 17: Forecast of gross lending on unsecured personal loans, 2003-13
Factors used in the forecast
MARKET SHARE
Key points
Lloyds TSB is the market leader
Figure 18: Unsecured personal loan market share, by provider, August 2007 and September 2008
The ‘big five’ dominate the market
Figure 19: Unsecured personal loan market share, by type of provider, September 2008
COMPANIES AND PRODUCTS
Key points
High street banks don’t offer the best rates
Figure 20: Top ten rates on unsecured personal loans, by value of loan, November 2008
PPI and other fees supplement interest income
A win-lose business model
An extremely diverse marketplace
Recent developments in the market
BRAND COMMUNICATION AND PROMOTION
Key points
Personal loan adspend has declined markedly…
Figure 21: Financial services advertising expenditure, by sub-category, 2005/06-2007/08
…in both the secured and unsecured sectors
Figure 22: Personal loan advertising expenditure, by sector, 2005/06-2007/08
Lloyds TSB has the highest advertising expenditure
Figure 23: Top 20 advertisers of unsecured personal loans, 2005/06-2007/08
Direct mail is the most popular advertising media
Figure 24: Unsecured personal loan advertising expenditure, by media type, 2007/08
BRAND ELEMENTS
 BRAND MAP
Figure 25: Attitudes towards and usage of unsecured personal loan brands, October 2008
 LLOYDS TSB
What the brand is trying to achieve
What the consumer thinks
Figure 26: Attitudes towards the Lloyds TSB brand, October 2008
 NATWEST
What the brand is trying to achieve
What the consumer thinks
Figure 27: Attitudes towards the NatWest brand, October 2008
 SAINSBURY’S BANK
What the brand is trying to achieve
What the consumer thinks
Figure 28: Attitudes towards the Sainsbury’s Bank brand, October 2008
 LOMBARD DIRECT
What the brand is trying to achieve
What the consumer thinks
Figure 29: Attitudes towards the Lombard Direct brand, October 2008
 FREEDOM FINANCE
What the brand is trying to achieve
What the consumer thinks
Figure 30: Attitudes towards the Freedom Finance brand, October 2008
 BRAND QUALITIES OF UNSECURED PERSONAL LOAN BRANDS
High street banks fare well compared to smaller lenders
Figure 31: Consumer usage of various unsecured persoanl loan brands, October 2008
Many people have never heard of Freedom Finance or Yes Loans
Figure 32: Consumer usage of various unsecured personal loan brands, October 2008
The big banks score highly on consideration…
Figure 33: Consideration of various unsecured personal loan brands, October 2008
…and are also seen to be gaining the most ground
Figure 34: Momentum of various unsecured personal loans brands, October 2008
Three fifths of borrowers are satisfied with their loan provider
Figure 35: Satisfaction of various unsecured personal loans brands, October 2008
 ROUND UP
CHANNELS TO MARKET
Key points
People are likely to source a loan through their bank
Figure 36: Likelihood of potential customers to source a loan through their current account provider, Sep’ 2008
A quarter of internet shoppers have bought a financial product online…
Figure 37: Tendency of internet shoppers to purchase vrious products online in the last three months, by product category, Oct 2003-Jul 2008
…but only one in ten internet users has bought a loan online recently
Figure 38: Websites actually purchased from in the last three months (financial products only), Oct 2003-Jul 2008
THE CONSUMER – PRODUCT OWNERSHIP
Key points
One in twelve people have an unsecured personal loan
Figure 39: Outstanding consumer credit ownership, September 2008
BMRB data suggest one in five people has a loan
Figure 40: Type of loan held, June 2008
Men are more likely to have an unsecured loan
Figure 41: Outstanding consumer credit ownership, by type of credit owned (excluding student loans), by gender, age, socio-economic group, marital status and age of children in household, September 2008
Ds and C1s more likely to have a loan…
…as are those with children
Two fifths of loan owners have it with their main bank
Figure 42: Proportion of product holders who hold financial products with their main current account provider, April 2008
The most common amount borrowed is £2,000-5,999
Figure 43: Value of loan, June 2008
Car purchase is the most common loan purpose
Figure 44: Purpose of loan, June 2008
THE CONSUMER – ATTITUDES TOWARDS BORROWING
Key points
Consumers are tightening their belts
Figure 45: Spending and saving intentions, September 2008
Most people would go to their current account provider for a loan
Figure 46: Likelihood of potential borrowers to enquirie with their current account provider about a loan, September 2008
Opinions are split on the impact on the credit crunch
Figure 47: Perceived effect of the credit crunch on peoples’ ability to get a loan, September 2008
Low earners are less likely to make cut-backs
Figure 48: Consumer spending and saving intentions, by gross annual household income, September 2008
Older people also look to carry on as they are
Larger households will tighten their belts more
Younger people more likely to enquire at their bank for a loan…
Figure 49: Likelihood of potential borrowers to enquire at their main bank to take out a loan, by gender, age, working status, gross annual household income and TV recieved, September 2008
…as are less educated people
ABs don’t think the credit crunch will affect their lendability…
Figure 50: Attitudes of consumers towards lending and the current economic environment, by gender, age, socio-economic group, marital status, lifestage and ACORN group, September 2008
…the same case for Wealthy Achievers
Existing holders of debt are tightening their belts more
Figure 51: Attitudes towards borrowing, by types of consumer-credit owned, September 2008
People that are cutting back are a better cross-sell target
Figure 52: Attitudes towards borrowing, crossed with itself, September 2008
THE CONSUMER – BORROWING TRENDS
Key points
Half of people don’t think they’ll need a loan in the near future
Figure 53: Consumer borrowing trends, September 2008
Men are more in touch with the personal loans market
Figure 54: Consumer borrowing trends, by gender, age, socio-economic group, lifestage, newspaper readership and household size, September 2008
ABs are more rate-sensitive
Large households are a good target group
Evidence of the debt cycle…
Figure 55: Consumer borrowing trends, by types of consumer credit owned, September 2008
…as unsecured loan holders are more stretched
People that are cutting back are more rate-sensitive…
Figure 56: Consumer borrowing trends, by attitudes towards borrowing, September 2008
…and are generally more confident in their financial position
People who recognise the impact of the crunch seem more savvy
Rate tarts are not in the market for a loan
Figure 57: Spread of attitudes towards borrowing, September 2008
Low-risk borrowers are savvy… but also unprofitable
THE CONSUMER: FURTHER ANALYSIS
Key points
People go for easily accessible forms of borrowing first
Figure 58: Number of different consumer credit products held, by type, September 2008
Consumer credit is the domain of the young adult
Figure 59: Number of different consumer credit products held, by gender, age, own children in household, working status and gross annual houshold income, September 2008
Children are expensive creatures
Analysis of attitudinal groups
Figure 60: Summary of attitudinal groups identified, September 2008
Figure 61: Size of attitudinal groups, September 2008
It’s business as usual for debt-frees…
…who aren’t worried about the economic downturn
Figure 62: Proportion of people that don’t think the credit crunch will make any difference to them getting a loan, by attitudinal group, September 2008
Average Joes are tightening their belts…
…and are split on their views of the credit crunch
Savvies are playing it safe…
…and have the highest level of debt
Super confidents are not likely to need a loan
… but are a low-risk group
Retirees are more or less excluded from the market
…evidenced by their low debt ownership profile
APPENDIX – MARKET SIZE AND FORECAST
Figure 63: Total gross unsecured consumer lending split, by product category, 2002-08
APPENDIX – THE CONSUMER: PRODUCT OWNERSHIP
Figure 64: Outstanding consumer credit ownership, by type of credit owned, by demographic sub-group, September 2008, (Table 1 of 2)
Figure 65: Outstanding consumer credit ownership, by type of credit owned, by demographic sub-group, September 2008 (Table 2 of 2)
APPENDIX – THE CONSUMER: ATTITUDES TOWARDS BORROWING
Figure 66: Attitudes of consumers towards lending and the current economic environment, by demographic sub-group, September 2008
APPENDIX – THE CONSUMER: BORROWING TRENDS
Figure 67: Consumer borrowing trends, by demographic sub-group, September 2008, (Table 1 of 2)
Figure 68: Consumer borrowing trends, by demographic sub-group, September 2008, (Table 2 of 2)
APPENDIX – THE CONSUMER: FURTHER ANALYSIS
Figure 69: Number of different consumer credit products held, by demographic sub-group, September 2008
Figure 70: Attitudes towards borrowing, by attitudinal group, September 2008
Figure 71: Number of outstanding consumer credit debts, by attitudinal group, September 2008
Figure 72: Attitudinal groups, by demographic sub-group, September 2008