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Consumers and Retail Credit - UK - February 2018

“Consumer confidence and good credit availability has driven year-on-year growth in retail credit lending. Going forward, technology innovation will make the provision and application of online retail credit more streamlined, helping to attract new customers. Partnerships with fintech lending firms will also extend the availability of retail credit among retailers. However, the squeeze on incomes and consumers’ desire to cut back on spending will likely dampen growth.”
– Jessica Galletley, Financial Services Analyst

This Report looks at the following areas:

  • Open Banking presents new opportunities for point-of-sale credit
  • Improving the perception of retail credit
  • Retail credit competes with credit cards

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
      • Executive Summary

          • The market
            • FLA members lend £9 billion in 2017
              • Market forecast to reach £12 billion
                • Figure 1: Forecast of the value of retail store and online credit, 2012-22
              • Weak pound drives up the value of retail sales
                • FCA publishes findings of its high-cost credit review
                  • Open Banking presents opportunities for e-commerce
                    • Companies and brands
                      • Shop Direct dominates the retail credit market
                        • Figure 2: Leading providers of retail credit, Mintel estimates, 2016
                      • More retailers switching to credit cards
                        • Online IFC options offer opportunities and challenges for retailers
                          • The consumer
                            • Credit cards pose the greatest competition to retail credit
                              • Figure 3: Purchasing methods, October 2017
                            • Store cards most popular form of traditional retail credit
                              • Figure 4: Retail credit usage, October 2017
                            • Majority don’t use retail credit because they need to
                              • Figure 5: Reasons for using retail credit, October 2017
                            • Interest free is the biggest attraction
                              • Figure 6: Factors that would make people consider using retail credit, October 2017
                            • Three out of four prefer to save rather than use credit
                              • Figure 7: Purchasing behaviour, October 2017
                            • Accessing retail credit needs to be convenient
                              • Figure 8: Attitudes towards retail credit, October 2017
                            • What we think
                            • Issues and Insights

                              • Open Banking presents new opportunities for point-of-sale credit
                                • The facts
                                  • The implications
                                    • Improving the perception of retail credit
                                      • The facts
                                        • The implications
                                          • Retail credit competes with credit cards
                                            • The facts
                                              • The implications
                                              • The Market – What You Need to Know

                                                • FLA members lend £9 billion in 2017
                                                  • Lending set for modest annual growth in the coming years
                                                    • Weak pound drives up the value of retail sales
                                                      • FCA publishes findings of its high-cost credit review
                                                        • Open Banking presents opportunities for e-commerce
                                                        • Market Size and Forecast

                                                          • FLA members lend £9 billion in 2017
                                                            • Figure 9: Value of retail store and online credit, 2012-17
                                                          • Market forecast to reach £12 billion
                                                            • Figure 10: Forecast of the value of retail store and online credit, 2012-22
                                                            • Figure 11: Forecast of retail store and online credit, and at 2017 prices, 2012-22
                                                          • Forecast methodology
                                                          • Market Drivers

                                                            • Unsecured lending rose by 5% in 2017
                                                              • Figure 13: Value of total unsecured borrowing (excluding loans from the Student Loans Company), 2008-17
                                                            • Inflation outpaces earnings growth
                                                              • Figure 14: Consumer price index, Bank of England base rate, and Average Weekly Earnings (year-on-year growth), September 2008-November 2017
                                                            • Weak pound drives up the value of retail sales
                                                              • Figure 15: Retail sales trends, non-seasonally-adjusted, 2016/17
                                                            • Appetite for spending remains positive
                                                              • Figure 16: The financial activity index, June 2012-September 2017
                                                            • Lipstick effect will see people spend on smaller value luxury items
                                                              • Figure 17: Financial activity, October 2017
                                                          • Regulatory and Legislative Changes

                                                            • FCA publishes findings of its high-cost credit review
                                                              • Open Banking presents opportunities for e-commerce
                                                              • Companies and Brands – What You Need to Know

                                                                • Shop Direct dominates the retail credit market
                                                                  • More retailers switching to credit cards
                                                                    • Online IFC options offer opportunities and challenges for retailers
                                                                    • Market Share

                                                                      • Shop Direct dominates the retail credit market
                                                                        • Figure 18: Leading providers of retail credit, Mintel estimates, 2016
                                                                      • Retailers source their credit in different ways
                                                                        • Figure 19: Selected retailers and their credit providers
                                                                    • Competitive Strategies

                                                                      • More retailers switching to credit cards
                                                                        • Retailers adopt flexi-pay solutions
                                                                          • Klarna
                                                                            • ClearPay
                                                                              • PayPal Credit poses a challenge for retail credit providers
                                                                                • Retail credit faces negative media coverage
                                                                                  • Fair for You
                                                                                    • Developing online journeys is essential for growth
                                                                                      • Credit incentive to shop small could help retail sales
                                                                                      • The Consumer – What You Need to Know

                                                                                        • Credit cards pose the greatest competition to retail credit
                                                                                          • Store cards most popular form of traditional retail credit
                                                                                            • Interest free is the biggest attraction
                                                                                              • Three out of four prefer to save rather than use credit
                                                                                                • Accessing retail credit needs to be convenient
                                                                                                • Purchasing Methods

                                                                                                  • Credit cards pose the greatest competition to retail credit
                                                                                                    • Multi-store cards offer more incentive to open an account
                                                                                                      • Figure 20: Purchasing methods, October 2017
                                                                                                    • Retail credit usage more popular for household items
                                                                                                    • Retail Credit Usage

                                                                                                      • Store cards most popular form of traditional retail credit
                                                                                                        • Retailers turn to credit cards
                                                                                                          • Figure 21: Retail credit usage, October 2017
                                                                                                        • Lack of savings means younger consumers turn to retail credit
                                                                                                          • Figure 22: Retail credit usage, by age, October 2017
                                                                                                        • Interest free is enticing regardless of income and wealth
                                                                                                          • DEs are more likely to use retail credit over other forms
                                                                                                            • Figure 23: Retail credit usage, by socio-economic status, October 2017
                                                                                                        • Interest-free Credit

                                                                                                          • Majority take out retail credit on an interest-free basis
                                                                                                            • Interest-free can incentivise purchases
                                                                                                              • Figure 24: Interest-free credit usage, October 2017
                                                                                                          • Reasons for Using Retail Credit

                                                                                                            • Majority don’t use retail credit because they need to
                                                                                                              • New ways to pay can satisfy consumers’ desire for fun when shopping
                                                                                                                • Figure 25: Reasons for using retail credit, October 2017
                                                                                                              • Flexible features will help those who really need credit
                                                                                                                • Figure 26: Reasons for using retail credit, by age, October 2017
                                                                                                            • Incentives for Using Retail Credit

                                                                                                              • Interest free is the biggest attraction
                                                                                                                • Figure 27: Factors that would make people consider using retail credit, October 2017
                                                                                                              • Repeat borrowers support introduction of rewards schemes
                                                                                                                • Figure 28: Factors that would make people consider using retail credit, by retail credit usage, October 2017
                                                                                                            • Purchasing Behaviour

                                                                                                              • Three out of four prefer to save rather than use credit
                                                                                                                • Figure 29: Purchasing behaviour, October 2017
                                                                                                              • Online purchases pose a challenge for retail credit sales
                                                                                                                • Retailers will benefit from Open Banking
                                                                                                                  • One in three would be interested in taking out a credit card with a favourite retailer
                                                                                                                    • Figure 30: Approach to purchases – CHAID Analysis – Tree output, October 2017
                                                                                                                • Attitudes towards Retail Credit

                                                                                                                  • Retail credit isn’t a first choice
                                                                                                                    • Figure 31: Attitudes towards retail credit, October 2017
                                                                                                                  • Accessing retail credit needs to be convenient
                                                                                                                    • Figure 32: Attitudes towards retail credit, by retail credit usage, October 2017
                                                                                                                • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                    • Abbreviations
                                                                                                                      • Consumer research methodology
                                                                                                                      • Appendix – Market Size and Forecast

                                                                                                                          • Figure 32: Forecast of retail store and online credit, best and worst case forecasts, 2017-22
                                                                                                                        • Forecast methodology

                                                                                                                        Consumers and Retail Credit - UK - February 2018

                                                                                                                        US $2,693.85 (Excl.Tax)