Unsecured Loans - UK - January 2017

OVERVIEW
What you need to know
Products covered in this report
EXECUTIVE SUMMARY
The market
Growth expected to slow in the coming years
Figure 1: Forecast of the value of unsecured personal loans, by gross advances, 2011-21
Consumers are as likely to go direct or to a comparison site for loan information
Figure 2: Most likely source of information when taking out an unsecured loan, October 2016
Interest rates reach record lows
Figure 3: £5,000 and £10,000 loan interest rates, average credit card rates, LIBOR, and base rate, November 2010-October 2016
Companies and brands
Lloyds Banking Group is the market leader in personal loans
Figure 4: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2014 and 2015
Adspend for unsecured loans falls by nearly half
Figure 5: Total above-the line, online display and direct mail advertising expenditure on loans, 2011/12-2015/16
High-street brands have higher levels of awareness and trust
Figure 6: Attitudes towards and usage of selected finance brands, December 2016
The consumer
One in 10 owe money on a personal loan
Figure 7: Loan and credit product ownership, October 2016
People are most likely to have taken a loan with a bank
Figure 8: Type of personal loan, October 2016
A fifth of credit users owe less than £500
Figure 9: Amount owed on all loans and credit products, October 2016
Flexible features are important when considering a loan
Figure 10: Interest in loan features, October 2016
Advertised rates play a big part in decision-making
Figure 11: Attitudes towards interest rates, October 2016
Majority want to repay their debts as quickly as possible
Figure 12: Attitudes towards borrowing, October 2016
What we think
ISSUES AND INSIGHTS
Short-term mindset makes loans unappealing
The facts
The implications
Vulnerable consumers should be given personal indicative rates
The facts
The implications
Soft-search tools will change the way people search and apply for loans
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
‘Other’ consumer credit growing faster than credit cards
Growth expected to slow in the coming years
Consumers are as likely to go direct or to a comparison site for loan information
Interest rates reach record lows
Write-offs total just 0.5% of unsecured lending
MARKET SIZE AND FORECAST
Unsecured lending continues to grow
Figure 13: Gross unsecured lending, 2006-15
Figure 14: Gross unsecured lending, 2012-16 (est)
Other consumer credit growing at a faster rate
Figure 15: Other consumer credit, 2012-16 (est)
Growth expected to slow in the coming years
Figure 16: Forecast of the value of unsecured personal loans, by gross advances, 2011-21
Figure 17: Forecast for gross lending for personal loans, 2011-21
The impact of the EU Referendum vote
Figure 18: Post-Brexit alternative market scenarios for the value of unsecured personal loans, by gross advances, 2016-21
Figure 19: Detailed post-Brexit alternative market scenarios for the value of unsecured personal loans, by gross advances, 2016-21
Forecast methodology
CHANNELS TO MARKET
Consumers are as likely to go direct or to a comparison site for loan information
In reality, people will use a mix of sources
Figure 20: Most likely source of information when taking out an unsecured loan, October 2016
Generational differences point to future cross-selling challenges
… whilst the use of family and friends for advice highlights need for unbiased source
Figure 21: Source of information, by age, October 2016
Loan-holders are slightly more likely to borrow from their main bank
Figure 22: Financial product ownership and cross-sales, July 2016
MARKET DRIVERS
Interest rates reach record lows
Figure 23: £5,000 and £10,000 loan interest rates, average credit card rates, LIBOR, and base rate, November 2010-October 2016
Consumers benefit from increased competition
CMA’s open banking proposals
Innovative Finance ISA
Credit conditions remain positive
Consumer confidence sustains demand for credit
Figure 24: Financial confidence, January 2009-October 2016
Write-offs total just 0.5% of unsecured lending
Figure 25: Annual write-offs of other unsecured lending to individuals, 2010-15
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
Lloyds Banking Group is the market leader in personal loans
High-street banks target existing customers
The rise of blending
Adspend for unsecured loans falls by nearly half
Lack of awareness means challengers struggle to differentiate themselves
MARKET SHARE
Lloyds Banking Group is the market leader in personal loans
Figure 26: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2014 and 2015
Supermarket banks continue to perform well
Alternative providers fight for share
COMPETITIVE STRATEGIES
High-street banks target existing customers…
… whilst challengers are open to all
Lenders move into the HCMTC market
P2P continues to gain traction
Student loan providers seek greater market share
Incumbents focus on digital to match Fintech lenders
LAUNCH ACTIVITY AND INNOVATION
Lenders increase loan sizes
Doorstep loans adapt to changing channel preferences
The rise of blending
Credit cards as loans
Loans as credit cards
Secured loans as credit cards
Soft searches starting to be rolled out to loans
ADVERTISING AND MARKETING ACTIVITY
Adspend for unsecured loans falls by nearly half
Figure 27: Total above-the line, online display and direct mail advertising expenditure on loans, 2011/12-2015/16
Payday lenders are the biggest spenders
Figure 28: Top 20 spenders on advertising for unsecured and payday loans, 2013/14-2015/16
TV attracts majority of adspend
Figure 29: Advertising spend for loans, by media type, 2015/16
Nielsen Ad Intel coverage
BRAND RESEARCH
What you need to know
Figure 30: Attitudes towards and usage of selected finance brands, December 2016
Key brand metrics
Figure 31: Key metrics for selected finance brands, December 2016
Brand attitudes: Loan specialists recognised for offering something different
Figure 32: Attitudes, by brand, December 2016
Brand personality: M&S stands out for being exclusive
Figure 33: Brand personality – Macro image, December 2016
High-street providers associated with helpfulness and competency
Figure 34: Brand personality – Micro image, December 2016
BRAND ANALYSIS
Traditional challengers have high levels of awareness
Non-financial services brands influenced by consumer perceptions of other products
Sunny fails to shine
THE CONSUMER – WHAT YOU NEED TO KNOW
One in 10 owe money on a personal loan
People are most likely to have taken a loan with a bank
Flexible features are important when considering a loan
Advertised rates play a big part in decision-making
Protection products need to be repositioned
LOAN AND CREDIT PRODUCT OWNERSHIP
Two thirds of adults owe money on a loan or credit product
Figure 35: Loan and credit product ownership, October 2015 vs October 2016
One in 10 owe money on a personal loan
Figure 36: Repertoire of loan and credit product ownership, October 2016
Higher earners are more likely to owe money on a loan
Figure 37: Ownership of any type of unsecured loan (including car loan/ other car finance plan and personal loan/ other type of loan), October 2016
Credit ownership rises along with socio economic status
Figure 38: Repertoire of loan and credit product ownership, October 2016
TYPE OF PERSONAL LOAN
People are most likely to have taken a loan with a bank
Figure 39: Type of personal loan, October 2016
Specialist loan providers increase their market share
Figure 40: Type of personal loan, by sources of information, October 2016
AMOUNT OWED ON LOAN AND CREDIT PRODUCTS
A fifth of credit users owe less than £500
Figure 41: Amount owed on all loans and credit products, October 2016
Personal loan holders have higher outstanding balances
Figure 42: Loan and credit product ownership, by amount owed, October 2016
Over-55s tend to have lower outstanding balances
Figure 43: Amount owed on all loans and credit products, October 2016
INTEREST IN LOAN FEATURES
Flexible features are important when considering a loan …
Figure 44: Interest in loan features, October 2016
… and consumers want loans to adapt to changes in their finances
Soft-search checks will dispel concerns over rejections
On-the-go access is not that important for loans
Added flexibility could attract potential loan users
Figure 45: Interest in loan features, by agreement with the statement ‘I prefer to use other credit products (eg credit cards, overdraft) before taking out a loan’, October 2016
ATTITUDES TOWARDS INTEREST RATES
People recognise the differences between advertised and actual rates
Figure 46: Attitudes towards interest rates, October 2016
… but they still play a big part in decision-making
Figure 47: Response to the statement ‘I look for the best advertised rate when selecting a loan provider’, by demographic group, October 2016
People want to know how they can get the best rates
Confusion means people look elsewhere
Figure 48: Agreement with the statement ‘It's difficult to understand how to get the best rates’, by type of personal loan, October 2016
ATTITUDES TOWARDS BORROWING
Borrowers have an aversion to credit
Figure 49: Attitudes towards borrowing, October 2016
Protection products need to be repositioned
Credit cards pose a challenge for the prime market
Two thirds of loan holders would have preferred to use a different credit product
Figure 50: Attitudes towards borrowing, any ‘Yes’, October 2016
Low repayments are key for younger generations
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Abbreviations
Consumer research methodology
Methodology
Figure 51: Attitudes towards interest rates – CHAID – Tree output, October 2016
APPENDIX – MARKET SIZE AND FORECAST
Additional best/ worst forecast table
Figure 52: Best and worst case forecasts for the value of unsecured personal loans, by gross advances, 2011-21
Forecast methodology