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Unsecured Loans - UK - January 2016

“The unsecured personal loans market is expected to have grown by 12% in 2015, with easing credit conditions and growing consumer confidence leading to an increased demand for credit. However, peer-to-peer lending platforms are making waves in the market, with consumer awareness and consideration growing for these products. This will disrupt high street lenders’ plans for growth going forward, who will need to highlight the benefits of face-to-face advice in order to remain relevant.”
– Jessica Galletley, Financial Services Analyst

This report examines the following areas:

  • Peer-to-peer platforms: turning lenders into borrowers
  • Payday loans have scope to move away from being a last resort product
  • Smart searches will resolve concerns over credit checks

With a base rate rise on the horizon, growth in demand could slow as consumers face the effect of rising costs of borrowing. Maintaining a competitive edge will be important for lenders, as challenger lenders disrupt the market with innovative forms of online lending, which continues to grow as the most used channel for arranging unsecured loans. Personalisation will be increasingly important going forward, as borrowers want products that match their individual needs, with greater levels of flexibility.

This report examines the performance of the unsecured loans market, and consumer ownership of loan and credit products. It looks at the reasons why people choose to take out a loan and consumer attitudes towards borrowing in general. It also looks at the performance of more niche providers, who continue to challenge the incumbents and consumer perceptions of the market. It explores changing consumer attitudes and the use of payday lenders, and looks into the ever-growing peer-to-peer lending market, and how this might challenge more traditional lenders going forward.

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Table of contents

  1. Introduction

    • Executive Summary

        • The market
          • Estimated market growth of 12% in 2015
            • Figure 1: Forecast of the value of unsecured personal loans, by gross advances, fan chart, 2010-20
          • Online is the most popular channel
            • Figure 2: Channel used to apply for loan, October 2015
          • Key players
            • Lloyds Banking Group remains the market leader
              • Figure 3: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2013 and 2014
            • Advertising spend increases by over half
              • Figure 4: Advertising spend on loans, 2010/11-2014/15
            • High street retail banks continue to be most trusted and used brands
              • Figure 5: Attitudes towards and usage of selected brands, November 2015
            • The consumer
              • Most people have a credit/loan product
                • Figure 6: Loan and credit product ownership, October 2015
              • Over half owe less than £3,000
                • Figure 7: Amount owed on all loans and credit products, October 2015
              • Over a fifth have a loan to pay for a car/vehicle
                • Figure 8: Reason for loan ownership, October 2015
              • Majority remain opposed to payday loans
                • Figure 9: Payday loan usage and consideration, October 2015
              • No debt is seen as good debt
                • Figure 10: Attitudes towards borrowing, October 2015
              • 15% would be interested in borrowing from a peer-to-peer lender
                • Figure 11: Attitudes towards peer-to-peer lending, October 2015
              • What it means
              • Issues and Insights

                • Peer-to-peer platforms: turning lenders into borrowers
                  • The facts
                    • The implications
                      • Payday loans have scope to move away from being a last resort product
                        • The facts
                          • The implications
                            • Smart searches will resolve concerns over credit checks
                              • The facts
                                • The implications
                                • The Market – What You Need to Know

                                  • Unsecured lending market growing
                                    • Nearly half purchase online
                                      • Competitive environment drives down the cost of loans
                                        • Consumer confidence is increasing
                                          • Write-offs in lending continue to drop
                                          • Market Size and Forecast

                                            • Unsecured lending market growing
                                              • Figure 12: Gross unsecured lending, 2011-15
                                            • 16% growth for unsecured personal loans
                                              • Figure 13: Other consumer credit, 2011-15
                                            • Market forecast
                                              • Figure 14: Forecast of the value of unsecured personal loans, by gross advances, fan chart, 2010-20
                                              • Figure 15: Forecast of the value of unsecured personal loans, by gross advances, 2010-20
                                            • Forecast methodology
                                            • Channels to Market

                                              • Online is the most popular channel…
                                                • …but some still prefer to purchase offline
                                                  • Borrowers go direct
                                                    • Figure 16: Channel used to apply for loan, October 2015
                                                  • Under-45s more likely to purchase online
                                                    • Figure 17: Channels used to apply for loan, by age, October 2015
                                                • Market Drivers

                                                  • Competitive environment drives down the cost of loans
                                                    • Figure 18: £5,000 and £10,000 loan interest rates, LIBOR, and base rate, November 2009-November 2015
                                                  • FCA regulation hits payday lenders
                                                    • FCA to investigate the collection of unsecured debts
                                                      • Consumer confidence is increasing
                                                        • Figure 19: Financial confidence, January 2009-October 2015
                                                      • Write-offs in lending continue to drop
                                                        • Figure 20: Annual write-offs of other unsecured lending to individuals, 2010-14
                                                      • P2P loans maintain popularity
                                                      • Key Players – What You Need to Know

                                                        • Lloyds Banking Group remains the market leader
                                                          • High street banks target existing customers
                                                            • Advertising spend increases by over half
                                                              • High street banks have consumer trust
                                                              • Market Share

                                                                • Lloyds Banking Group remains the market leader
                                                                  • Supermarket banks’ share of the market grows
                                                                    • Figure 21: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2013 and 2014
                                                                • Competitive Strategies

                                                                    • High street banks attract existing customers
                                                                      • Price guarantees ensure competitiveness
                                                                        • Guarantor replace payday loans
                                                                          • PCWs lead the way in more transparent lending
                                                                          • Advertising and Marketing Activity

                                                                            • Adspend on unsecured loans increases by over half
                                                                              • Figure 22: Total above-the line, online display and direct mail advertising expenditure on loans, 2010/11-2014/15
                                                                            • Subprime lenders dominate advertising space
                                                                              • Supermarkets strong competitors for business
                                                                                • P2P lenders increase spend
                                                                                  • Figure 23: Top 20 spenders on advertising for unsecured and payday loans, 2012/13-2014/15
                                                                                • Lenders spend on TV advertising
                                                                                  • Figure 24: Advertising spend for loans, by media type, 2014/15
                                                                                • Loan providers compete for online presence
                                                                                  • Nielsen Media Research coverage
                                                                                  • Brand Research

                                                                                      • What you need to know
                                                                                        • Brand map
                                                                                          • Figure 25: Attitudes towards and usage of selected brands, November 2015
                                                                                        • Key brand metrics
                                                                                          • Figure 26: Key metrics for selected brands, November 2015
                                                                                        • Brand attitudes: Tesco Bank noted for rewarding loyalty
                                                                                          • Figure 27: Attitudes, by brand, November 2015
                                                                                        • Brand personality: Wonga most likely to be seen as unethical
                                                                                          • Figure 28: Brand personality – macro image, November 2015
                                                                                        • Most brands located around competency, reliability and customer service traits
                                                                                          • Figure 29: Brand personality – micro image, November 2015
                                                                                      • Brand Analysis

                                                                                        • High street retail banks continue to be most trusted and used brands
                                                                                          • Santander particularly stands out as being in an advantageous position
                                                                                            • Loan specialists suffer from stronger negative perceptions than other brands
                                                                                              • Brands aligned to retailers show potential for growth
                                                                                                • Yorkshire Bank has regional strength but is limited by narrower-reaching network
                                                                                                • The Consumer – What You Need to Know

                                                                                                  • Nearly a fifth owe money on an unsecured loan
                                                                                                    • Over half owe less than £3,000
                                                                                                      • Over a fifth have a loan to pay for a car/vehicle
                                                                                                        • Consumers consider brand reputation
                                                                                                          • Payday loans usage not limited to those who are financially struggling
                                                                                                          • Loan and Credit Product Ownership

                                                                                                            • Nearly two thirds own a credit or loan product
                                                                                                              • Nearly a fifth owe money on an unsecured loan
                                                                                                                • Credit card deals rival personal loans
                                                                                                                  • Figure 30: Loan and credit product ownership, October 2015
                                                                                                                • Parents are twice as likely to have a personal loan
                                                                                                                  • Figure 31: Loan and credit product ownership, by parent (of under-16s), October 2015
                                                                                                                • Nearly half own only one type of credit or loan product
                                                                                                                  • Personal loan ownership higher among experienced borrowers
                                                                                                                    • Figure 32: Loan and credit product ownership, by repertoire of loan and credit products ownership, October 2015
                                                                                                                • Amount Owed on Loan and Credit Products

                                                                                                                  • Over half owe less than £3,000
                                                                                                                    • Figure 33: Amount owed on all loans and credit products, October 2015
                                                                                                                  • Under-45s more likely to have lower levels of debt
                                                                                                                    • Figure 34: Amount owed on all loans and credit products, by age, October 2015
                                                                                                                • Reasons for Loan Ownership

                                                                                                                  • Over a fifth have a loan to pay for a car/vehicle
                                                                                                                    • Under-45s are more likely to be taking out a loan to help make ends meet
                                                                                                                      • Figure 35: Reason for loan ownership, October 2015
                                                                                                                  • Payday Loans – Usage and Consideration

                                                                                                                    • Majority remain opposed to payday loans
                                                                                                                      • Figure 36: Payday loan usage and consideration, October 2015
                                                                                                                    • Payday loans used by those with savings
                                                                                                                      • Figure 37: Payday loan ownership, by value of savings and investments, October 2015
                                                                                                                  • Attitudes towards Borrowing

                                                                                                                    • No debt is good debt
                                                                                                                      • Consumers consider brand reputation…
                                                                                                                        • …but a competitive rate will provide opportunities for new brands
                                                                                                                          • Concerns about passing a credit check
                                                                                                                            • Figure 38: Attitudes towards borrowing, October 2015
                                                                                                                          • Nearly a third of loan holders are considering taking out another loan
                                                                                                                            • Figure 39: Agreement with attitudes towards borrowing statements, by unsecured loan ownership, October 2015
                                                                                                                          • Larger households would benefit from combining debts
                                                                                                                            • Figure 40: Attitudes towards borrowing – CHAID – Tree output, October 2015
                                                                                                                        • Attitudes towards Peer-to-Peer Lending

                                                                                                                          • 15% would be interested in borrowing from a peer-to-peer lender
                                                                                                                            • Figure 41: Agreement with the statement ‘I would be interested in borrowing money from a peer-to-peer lending site in the future’, by agreement with the statement ‘I am considering taking out a loan in the next 12 months’, October 2015
                                                                                                                          • IFISA will draw attention to P2P borrowing
                                                                                                                            • Traditional lenders have consumer trust
                                                                                                                              • Figure 42: Attitudes towards peer-to-peer lending, October 2015
                                                                                                                          • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                            • Report scope and definitions
                                                                                                                              • Data sources
                                                                                                                                • CHAID analysis methodology
                                                                                                                                  • Abbreviations
                                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                                      • Figure 43: Best- and worst-case scenario forecast – Value of unsecured personal loans, by gross advances, 2015-20
                                                                                                                                    • Forecast Methodology

                                                                                                                                    Companies Covered

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                                                                                                                                    Unsecured Loans - UK - January 2016

                                                                                                                                    US $2,583.33 (Excl.Tax)