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Personal Loans - UK - January 2013

“The personal loans market has undergone something of a transformation over recent years as payday lenders and peer-to-peer lenders have established themselves as viable alternatives to more traditional options. High street lenders must now adapt to the changing face of the personal loan market and ensure that they are giving customers what they want rather than just targeting their current account holders with uncompetitive rates and an outdated approach.”

– Stephanie Absolom – Financial Services Analyst

Some questions answered in this report include:

  • Can payday loans shake off the negative connotations?
  • Is a lack of product innovation bad news for traditional lenders?
  • Are the days of in-branch loan arrangement dead?
  • Are the days of selling to an existing client base over?
  • Is consumer appetite for credit returning?

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Table of contents

  1. Introduction

      • Report scope
        • Abbreviations
        • Executive Summary

            • The market
              • Confidence builds in the unsecured lending market
                • Figure 1: Forecast of the value of unsecured personal loans, by gross advances, 2007-17
              • Unsecured lending increases in 2012
                • Secured lending market contracts
                  • Market factors
                    • Government stimulus driving the lending market
                      • Payday lending market faces tighter regulation
                        • Household finances improving
                          • Figure 2: Annual change in Average Weekly Earnings, CPI and RPI, 2005-12
                        • Companies, products and innovations
                          • Market dominated by high street banks sees smaller players enter
                            • A market keen for innovation
                              • SmartSearch on Moneysupermarket
                                • Majority of loans arranged directly with lender
                                  • Figure 3: Type of provider used to arrange loan, 2008-12
                                • The consumer
                                  • Two thirds have some type of debt
                                    • Figure 4: Ownership of consumer credit, October 2012
                                  • Interest rates are key when it comes to loan choice
                                    • Figure 5: Influencing factors on loan selection, October 2012
                                  • Most loan research is conducted online
                                    • Figure 6: Loan research methods, October 2012
                                  • Product suitability is a key concern for borrowers
                                    • Figure 7: Loan application process, October 2012
                                  • Majority of people have ruled out using a payday lender
                                    • Figure 8: Payday loan usage, October 2012
                                  • Positive attitudes towards payday loans are thin on the ground
                                    • Figure 9: Attitudes towards payday loans, October 2012
                                  • What we think
                                  • Issues in the Market

                                      • Can payday loans shake off the negative connotations?
                                        • Is a lack of product innovation bad news for traditional lenders?
                                          • Are the days of in-branch loan arrangement dead?
                                            • Are the days of selling to an existing client base over?
                                              • Is consumer appetite for credit returning?
                                              • Trend Application

                                                • People are valuing brands on their ability to show moral responsibility
                                                  • Big brands need a small brand mentality to gain consumer trust
                                                    • Government intervention needed to address fears around cowboy lenders
                                                    • Market Drivers

                                                      • Key points
                                                        • Household unsecured debt continues to decline
                                                          • Figure 10: Value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 2003-12
                                                        • Weekly earnings grow just below inflation
                                                          • Figure 11: Annual change in Average Weekly Earnings, CPI and RPI, 2005-12
                                                        • Increasing consumer confidence is good news for lenders…
                                                          • Figure 12: Consumer confidence barometer trend – UK, January 2010 – December 2012
                                                        • … as is the decline in unemployment
                                                          • Figure 13: UK unemployment rate, 2007-12
                                                        • Debt write-offs continue to decline
                                                          • Figure 14: Quarterly write-offs of lending to individuals, by sector, 2007-12
                                                        • Increasing competition set to put pressure on margins
                                                          • Figure 15: Effective rate on personal loans, three-month LIBOR and base rate, 2005-12 (monthly)
                                                        • Lending market boosted by fall in loan rates
                                                          • Funding for lending
                                                            • A word about PPI compensation
                                                              • Figure 16: Total PPI Provisions as of 5 November 2012, by lender
                                                            • FCA to be given power to cap payday loan rates
                                                              • Moves to protect vulnerable customers from hidden payday loan charges
                                                                • Peer-to-peer lending market attracts lenders
                                                                • Competitor Products

                                                                  • Key points
                                                                    • 5% increase in gross unsecured lending in 2012
                                                                      • Figure 17: Gross consumer credit lending, by type, 2007-12
                                                                    • Big jump in total unsecured net lending
                                                                      • Figure 18: Net consumer credit lending, 2007-12
                                                                    • Acute contraction of the secured lending market
                                                                      • Figure 19: Value of new further advances and secured/homeowner loans, 2006-11
                                                                  • Market SWOT Analysis

                                                                      • Figure 20: SWOT analysis for loans market, January 2013
                                                                  • Who’s Innovating

                                                                    • Key points
                                                                      • Innovation needed but unwanted in a contracting lending market
                                                                        • Halifax offers additional extras
                                                                          • SmartSearch on Moneysupermarket
                                                                            • Peer-to-peer payday lending company launched
                                                                              • Wonga innovation
                                                                              • Market Size and Forecast

                                                                                • Key points
                                                                                  • Unsecured personal lending levels expected to show notable increase
                                                                                    • Figure 21: New gross unsecured loan advances – MBBG and total market, 2006-12
                                                                                  • Peer-to-peer lending market growing
                                                                                    • Payday lending market will grow but interest cap will halt stellar growth
                                                                                      • A bumpy but resilient recovery expected
                                                                                        • Figure 22: Forecast of the value of unsecured personal loans, by gross advances, 2007-17
                                                                                        • Figure 23: Forecast of gross lending on unsecured personal loans 2007 -17
                                                                                      • Forecast methodology
                                                                                      • Market Share

                                                                                        • Key points
                                                                                          • Lenders expected to increase lending levels
                                                                                            • Lloyds Banking Group is the largest loan provider
                                                                                              • Figure 24: Value of unsecured consumer lending business outstanding (UK), by selected providers, 2010-11
                                                                                            • Payday lending – overview of leading providers
                                                                                              • Wonga
                                                                                                • Enova –QuickQuid and Pounds to Pocket
                                                                                                  • PayDay UK
                                                                                                    • Peer-to-peer lender market share
                                                                                                      • Zopa
                                                                                                        • RateSetter
                                                                                                        • Companies and Products

                                                                                                          • Barclays
                                                                                                            • Description
                                                                                                              • Relevant brands and subsidiaries
                                                                                                                • Loan product range
                                                                                                                  • Other related products
                                                                                                                    • Distribution channels
                                                                                                                      • Recent financial performance
                                                                                                                        • Recent activity
                                                                                                                          • Grupo Santander
                                                                                                                            • Description
                                                                                                                              • Loan product range
                                                                                                                                • Other related products
                                                                                                                                  • Distribution channels
                                                                                                                                    • Recent financial performance
                                                                                                                                      • Recent activity
                                                                                                                                        • HSBC
                                                                                                                                          • Description
                                                                                                                                            • Relevant brands and subsidiaries
                                                                                                                                              • Loan product range
                                                                                                                                                • Other related products
                                                                                                                                                  • Distribution channels
                                                                                                                                                    • Recent financial performance
                                                                                                                                                      • Recent activity
                                                                                                                                                        • Lloyds Banking Group
                                                                                                                                                          • Description
                                                                                                                                                            • Relevant brands and subsidiaries
                                                                                                                                                              • Loan product range
                                                                                                                                                                • Other related products
                                                                                                                                                                  • Distribution channels
                                                                                                                                                                    • Recent financial performance
                                                                                                                                                                      • Recent activity
                                                                                                                                                                        • Nationwide Building Society
                                                                                                                                                                          • Description
                                                                                                                                                                            • Relevant brands and subsidiaries
                                                                                                                                                                              • Loan product range
                                                                                                                                                                                • Other related products
                                                                                                                                                                                  • Distribution channels
                                                                                                                                                                                    • Recent financial performance
                                                                                                                                                                                      • Recent activity
                                                                                                                                                                                        • RBS Group
                                                                                                                                                                                          • Description
                                                                                                                                                                                            • Relevant brands and subsidiaries
                                                                                                                                                                                              • Loan product range
                                                                                                                                                                                                • Other related products
                                                                                                                                                                                                  • Distribution channels
                                                                                                                                                                                                    • Recent financial performance
                                                                                                                                                                                                      • Recent activity
                                                                                                                                                                                                        • Wonga.com
                                                                                                                                                                                                          • Description
                                                                                                                                                                                                            • Relevant brands and subsidiaries
                                                                                                                                                                                                              • Loan product range
                                                                                                                                                                                                                • Other related products
                                                                                                                                                                                                                  • Distribution channels
                                                                                                                                                                                                                    • Recent financial performance
                                                                                                                                                                                                                      • Recent activity
                                                                                                                                                                                                                        • Zopa
                                                                                                                                                                                                                          • Description
                                                                                                                                                                                                                            • Loan product range
                                                                                                                                                                                                                              • Distribution channels
                                                                                                                                                                                                                                • Recent financial performance
                                                                                                                                                                                                                                  • Recent activity
                                                                                                                                                                                                                                  • Brand Communication and Promotion

                                                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                                                      • Advertising on structured loan products sees large growth in 2012
                                                                                                                                                                                                                                        • Figure 25: Advertising expenditure on structured loan products, 2008-12
                                                                                                                                                                                                                                      • Wonga is the largest unsecured lending advertiser
                                                                                                                                                                                                                                        • Figure 26: Top ten brands in the unsecured loans category, 2010-12
                                                                                                                                                                                                                                      • Sainsbury’s Bank and Santander increase loan adspend
                                                                                                                                                                                                                                        • TV is the most popular medium to advertise unsecured lending
                                                                                                                                                                                                                                          • Figure 27: Advertising expenditure on unsecured loans, by media type, 2010-12
                                                                                                                                                                                                                                        • A note on adspend
                                                                                                                                                                                                                                        • Channels to Market

                                                                                                                                                                                                                                          • Key points
                                                                                                                                                                                                                                            • Majority of people arrange loan directly with a bank or building society
                                                                                                                                                                                                                                              • Figure 28: Type of provider used to arrange loan , 2008-12
                                                                                                                                                                                                                                            • Banks target existing customers
                                                                                                                                                                                                                                              • Web aggregators and their use in personal loan distribution
                                                                                                                                                                                                                                                • Figure 29: Banking products researched/purchased through aggregator sites, March 2012
                                                                                                                                                                                                                                            • Loan and Credit Product Ownership

                                                                                                                                                                                                                                              • Key points
                                                                                                                                                                                                                                                • Two thirds of people have some kind of debt
                                                                                                                                                                                                                                                  • Figure 30: Ownership of consumer credit and other lending products, October 2012
                                                                                                                                                                                                                                                • Above-average credit ownership for 35-44-year-olds
                                                                                                                                                                                                                                                  • Figure 31: Loan and lending product ownership, by age, October 2012
                                                                                                                                                                                                                                                • Personal loan owners have above-average ownership of credit products
                                                                                                                                                                                                                                                  • Figure 32: Cross-analysis of credit ownership, October 2012
                                                                                                                                                                                                                                                • Loan ownership levels remain stable
                                                                                                                                                                                                                                                  • Figure 33: Ownership of loan, 2008-12
                                                                                                                                                                                                                                                • Car purchase and home loans are the most popular reasons to take out a loan
                                                                                                                                                                                                                                                  • Figure 34: Purpose of the most recent loan taken, 2008-12
                                                                                                                                                                                                                                              • Influencing Factors on Loan Choice

                                                                                                                                                                                                                                                • Key points
                                                                                                                                                                                                                                                  • Interest rates are the most important customer consideration
                                                                                                                                                                                                                                                    • Figure 35: Influencing factors on loan selection, October 2012
                                                                                                                                                                                                                                                  • Interest rates and loan term significantly more important for over-45s
                                                                                                                                                                                                                                                    • Figure 36: Influencing factors on loan choice, by age, October 2012
                                                                                                                                                                                                                                                  • Shorter term loans have grown in popularity
                                                                                                                                                                                                                                                    • Figure 37: Length of the most recent loan arrangement, 2008-12
                                                                                                                                                                                                                                                • Loan Product Research

                                                                                                                                                                                                                                                  • Key points
                                                                                                                                                                                                                                                    • The internet is the most popular loan research tool…
                                                                                                                                                                                                                                                      • Figure 38: Loan research methods, October 2012
                                                                                                                                                                                                                                                    • … price comparison sites have scope to increase role in loan market
                                                                                                                                                                                                                                                      • Search engine users are hunting a low interest rate
                                                                                                                                                                                                                                                        • Figure 39: Influencing factors on loan selection, by loan research methods, October 2012
                                                                                                                                                                                                                                                    • Impact of Loan Application Process on Provider Choice

                                                                                                                                                                                                                                                      • Key points
                                                                                                                                                                                                                                                        • Product suitability assurance at application stage is key
                                                                                                                                                                                                                                                          • Figure 40: Loan application process, October 2012
                                                                                                                                                                                                                                                        • Personal loan owners look for quick approvals
                                                                                                                                                                                                                                                          • Figure 41: Loan application process, by ownership of consumer credit and other lending products, October 2012
                                                                                                                                                                                                                                                        • Internet researchers are interested in speed and efficiency
                                                                                                                                                                                                                                                          • Figure 42: Loan application process, by loan research methods, October 2012
                                                                                                                                                                                                                                                      • Payday Loan Ownership

                                                                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                                                                          • Just over one in ten people have used a payday loan
                                                                                                                                                                                                                                                            • Figure 43: Payday loan usage, October 2012
                                                                                                                                                                                                                                                          • Young men and those aged 25-34 most likely to use a payday loan
                                                                                                                                                                                                                                                            • Figure 44: Payday loan usage, by gender and age
                                                                                                                                                                                                                                                          • Personal loan owners more likely to have used a payday loan
                                                                                                                                                                                                                                                            • Figure 45: Payday loan usage, by ownership of consumer credit, October 2012
                                                                                                                                                                                                                                                        • Attitudes Towards Payday Loans

                                                                                                                                                                                                                                                          • Key points
                                                                                                                                                                                                                                                            • Payday loans are viewed with negativity
                                                                                                                                                                                                                                                              • Figure 46: Attitudes towards payday loans, October 2012
                                                                                                                                                                                                                                                            • People with gaps in their finances value the quick decision from payday lenders
                                                                                                                                                                                                                                                              • Figure 47: Loan application process, by selected attitudes towards payday loans, October 2012
                                                                                                                                                                                                                                                            • Target market exists for payday lenders
                                                                                                                                                                                                                                                              • Figure 48: Attitudes towards payday loans, by payday loan usage, October 2012
                                                                                                                                                                                                                                                          • Appendix – Market Size

                                                                                                                                                                                                                                                              • Figure 49: Forecast of value sales for loans , best and worst case scenarios, 2006 - 17
                                                                                                                                                                                                                                                          • Appendix – Loan Product Ownership

                                                                                                                                                                                                                                                              • Figure 50: Ownership of consumer credit, by demographics, October 2012
                                                                                                                                                                                                                                                          • Appendix – Influencing Factors on Loan Choice

                                                                                                                                                                                                                                                              • Figure 51: Influencing factors on loan selection, by demographics, October 2012
                                                                                                                                                                                                                                                          • Appendix – Loan Product Research

                                                                                                                                                                                                                                                              • Figure 52: Loan research methods, by demographics, October 2012
                                                                                                                                                                                                                                                          • Appendix – Impact of Loan Application Process on Provider Choice

                                                                                                                                                                                                                                                              • Figure 53: Most popular loan application process, by demographics, October 2012
                                                                                                                                                                                                                                                              • Figure 54: Next most popular loan application process, by demographics, October 2012
                                                                                                                                                                                                                                                          • Appendix – Payday Loan Ownership

                                                                                                                                                                                                                                                              • Figure 55: Payday loan usage, by demographics, October 2012
                                                                                                                                                                                                                                                          • Appendix – Attitudes Towards Payday Loans

                                                                                                                                                                                                                                                              • Figure 56: Most popular attitudes towards payday loans, by demographics, October 2012
                                                                                                                                                                                                                                                              • Figure 57: Next most popular attitudes towards payday loans, by demographics, October 2012

                                                                                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                                                                                          • Barclays Bank plc
                                                                                                                                                                                                                                                          • Cheshire Building Society
                                                                                                                                                                                                                                                          • Derbyshire Building Society
                                                                                                                                                                                                                                                          • Direct Line Group Limited
                                                                                                                                                                                                                                                          • First Direct
                                                                                                                                                                                                                                                          • Grupo Santander Central Hispano S.A.
                                                                                                                                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                                                                          • ING Direct
                                                                                                                                                                                                                                                          • Lloyds Banking Group
                                                                                                                                                                                                                                                          • Marks & Spencer Financial Services plc
                                                                                                                                                                                                                                                          • Nationwide Building Society
                                                                                                                                                                                                                                                          • NatWest
                                                                                                                                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                                                                                                                                          • Twitter, Inc.
                                                                                                                                                                                                                                                          • Ulster Bank Ltd
                                                                                                                                                                                                                                                          • Woolwich plc
                                                                                                                                                                                                                                                          • Zopa Ltd

                                                                                                                                                                                                                                                          Personal Loans - UK - January 2013

                                                                                                                                                                                                                                                          £1,995.00 (Excl.Tax)