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Unsecured Loans - UK - January 2019

“Broader market forces are impacting the credit sector amid growing uncertainty, which is likely to result in important changes in the availability of and preference for different types of credit. A shift towards structured and affordable borrowing is expected, but if personal loans are to benefit providers must get better at matching borrowers with the best solution for their needs.”

- Irene Salazar, Financial Services Analyst

This report will look at the following areas:

  • From soft search to smart search
  • A change in the tide…
  • …could shift borrowers towards personal loans

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Table of contents

  1. Overview

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

          • The market
            • Unsecured lending grows…
              • …but personal loan sales decline in value in 2018
                • Figure 1: Forecast of the value of unsecured personal loans, by gross advances, 2013-23
              • Highest base rate since the economic crisis
                • Figure 2: Base interest rate, SONIA, and consumer credit quoted interest rates to households, January 2013-November 2018
              • End of income squeeze and a summer of record-high confidence
                • Figure 3: Change in CPI and average weekly earnings, November 2013-November 2018
              • An increase in write-offs may signal a change in market conditions
                • FCA to impose stricter restrictions on various types of lending
                  • GDPR and Open Banking take effect
                    • Companies and brands
                      • LBG is the market leader in personal loans
                        • Figure 4: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2015, 2016, and 2017
                      • Wonga goes into administration
                        • A year of milestones for Amigo Loans and Zopa
                          • John Lewis and Admiral: big brands expand their loan proposition
                            • Starling looks to help customers with new loan connected to overdraft
                              • Adspend for payday and unsecured loans grows by 8% and 4%
                                • Figure 5: Total above-the-line, online display and direct mail advertising expenditure on loans, 2013/14-2017/18*
                              • Specialist lenders leverage their expertise to build trust
                                • Figure 6: Attitudes towards and usage of selected brands, November 2018
                              • The consumer
                                • 61% of people currently owe money on a loan or credit product
                                  • Figure 7: Loan and credit product ownership, October 2018
                                • People rely on high-street providers, but specialists increase their reach
                                  • Figure 8: Type of loan provider used, October 2018
                                • Vehicle purchase is the main reason to take out a loan
                                  • Figure 9: Reasons for taking out a loan, October 2018
                                • Borrowers want positive reinforcement and flexibility
                                  • Figure 10: Interest in loan features, October 2018
                                • Consumers would consider a personal loan for small amounts
                                  • Figure 11: Minimum amount needed to consider a personal loan, October 2018
                                • Borrowing confuses people, and confusion drives them away
                                  • Figure 12: Attitudes and behaviours towards borrowing, October 2018
                                • What we think
                                • Issues and Insights

                                  • From soft search to smart search
                                    • The facts
                                      • The implications
                                        • A change in the tide…
                                          • The facts
                                            • The implications
                                              • …could shift borrowers towards personal loans
                                                • The facts
                                                  • The implications
                                                  • The Market – What You Need to Know

                                                    • Unsecured lending grows…
                                                      • …but personal loan sales decline in value in 2018
                                                        • Highest base rate since the economic crisis
                                                          • End of income squeeze and a summer of record-high confidence
                                                            • Rebound in write-offs may signal a change in market conditions
                                                              • FCA to impose stricter restrictions on various types of lending
                                                                • GDPR and Open Banking take effect
                                                                • Market Size and Forecast

                                                                  • Unsecured lending continues to grow…
                                                                    • Figure 13: Gross unsecured lending, October 2013-October 2018
                                                                  • …but personal loans experience a slight downturn
                                                                    • Figure 14: Other consumer credit including personal loans, 2013-18*
                                                                  • Credit card lending grew by 5% in 2018
                                                                    • ‘Other’ consumer credit slows
                                                                      • Figure 15: Gross unsecured lending, 2013-18*
                                                                  • Market Forecast

                                                                    • Growth expected to return, but at a slower rate
                                                                      • Figure 16: Forecast of the value of unsecured personal loans, by gross advances, 2013-23
                                                                      • Figure 17: Forecast of the value of unsecured personal loans, by gross advances, at current and constant prices, 2013-23
                                                                    • Forecast methodology
                                                                    • Market Drivers

                                                                      • Earnings growing faster than inflation
                                                                        • Figure 18: Change in CPI and average weekly earnings, November 2013-November 2018
                                                                      • Base rate at highest level since the financial crisis
                                                                        • Figure 19: Base interest rate, SONIA, and consumer credit quoted interest rates to households, January 2013-November 2018
                                                                      • Funding for Lending and Term Funding Schemes end
                                                                        • Increase in write-offs may signal a change in market conditions
                                                                          • Figure 20: Annual write-offs of other unsecured lending to individuals, 2013-18*
                                                                        • Summer of 2018 saw record-high consumer confidence
                                                                          • Figure 21: Mintel’s financial confidence index, November 2013-November 2018
                                                                        • Consumers expect Brexit to impact the cost of living
                                                                          • Figure 22: Impact of Brexit on consumer confidence, November 2018
                                                                      • Regulatory and Legislative Changes

                                                                        • Support for affordable credit announced in Autumn Budget
                                                                          • Intervention on ‘dysfunctional’ overdrafts market announced
                                                                            • Providers to support people in persistent debt
                                                                              • High-cost credit to be capped
                                                                                • Complaints about consumer credit reach record level
                                                                                  • Tougher requirements for P2P lenders
                                                                                    • GDPR and Open Banking take effect
                                                                                      • Where we are – Open Banking
                                                                                      • Companies and Brands – What You Need to Know

                                                                                        • LBG is the market leader in personal loans
                                                                                          • Wonga goes into administration
                                                                                            • Provident’s troubled year: fines, compensation, and banned ads
                                                                                              • A year of milestones for Amigo Loans and Zopa
                                                                                                • John Lewis and Admiral: big brands expand their loan proposition
                                                                                                  • Starling looks to help customers with new loan connected to overdraft
                                                                                                    • Adspend for payday and unsecured loans grows by 8% and 4%
                                                                                                    • Market Share

                                                                                                      • LBG is the market leader in personal loans
                                                                                                        • Figure 23: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2015, 2016, and 2017
                                                                                                      • Tesco Bank and Sainsbury’s Bank continue to show strong growth in unsecured lending
                                                                                                        • People much more likely to use their main bank for a personal loan
                                                                                                          • Figure 24: Financial products ownership, by proportion held with main current account provider, June 2018
                                                                                                      • Latest Developments

                                                                                                        • Wonga goes into administration
                                                                                                          • What happens next?
                                                                                                            • Provident’s troubled year: fines, compensation, and banned ads
                                                                                                              • Amigo Loans is floated on the stock market
                                                                                                                • Stop the #DebtThreats petition launched
                                                                                                                  • New campaigns highlights alternatives to high-cost credit
                                                                                                                  • Launch Activity and Innovation

                                                                                                                    • John Lewis launches competitive and flexible personal loans
                                                                                                                      • Admiral Loans expands into car finance
                                                                                                                        • P2P lender Zopa gets banking license
                                                                                                                          • Starling looks to help customers with new loan connected to overdraft
                                                                                                                            • FairMoney launches ‘smart search’ PCW
                                                                                                                              • Workplace loans as an employee benefit
                                                                                                                                • Shawbrook Bank shines light on ‘teaser’ rates
                                                                                                                                  • Borrowers significantly more likely to identify banking innovation
                                                                                                                                    • Case Study: Marcus by Goldman Sachs
                                                                                                                                      • In the US
                                                                                                                                        • In the UK
                                                                                                                                        • Advertising and Marketing Activity

                                                                                                                                          • Total adspend on loans up by 5%
                                                                                                                                            • Figure 25: Total above-the-line, online display and direct mail advertising expenditure on loans, 2013/14-2017/18*
                                                                                                                                          • Top 10 advertisers account for 87% of unsecured loans adspend
                                                                                                                                            • Figure 26: Top 20 spenders on advertising for unsecured and payday loans, 2015/16-2017/18*
                                                                                                                                          • TV is the preferred advertising channel
                                                                                                                                            • Figure 27: Total above-the-line, online display and direct mail advertising expenditure on payday, unsecured and secured loans, by media type, 2017/18*
                                                                                                                                          • Nielsen Ad Intel coverage
                                                                                                                                          • Brand Research

                                                                                                                                            • What you need to know
                                                                                                                                              • Brand map: Post Office scores highly in both trust and differentiation
                                                                                                                                                • Figure 28: Attitudes towards and usage of selected brands in the personal loans sector, November 2018
                                                                                                                                              • Key brand metrics: First Direct and John Lewis Finance customers most likely to rate their experience as excellent
                                                                                                                                                • Figure 29: Key metrics for selected brands in the personal loans sector, November 2018
                                                                                                                                              • Brand attitudes: Consumers value retailers’ reward schemes
                                                                                                                                                • Figure 30: Attitudes, by brand, November 2018
                                                                                                                                              • Macro image: Smaller brands most likely to been seen as exclusive
                                                                                                                                                • Figure 31: Brand personality – Macro image, November 2018
                                                                                                                                              • Micro image: Supermarket brands seen as affordable
                                                                                                                                                • Figure 32: Brand personality – Micro image, November 2018
                                                                                                                                            • Brand Analysis

                                                                                                                                              • High-street banks: tried and tested
                                                                                                                                                • High-street brands: building on their reputation
                                                                                                                                                  • Specialists: leveraging their competence to build trust
                                                                                                                                                  • The Consumer – What You Need to Know

                                                                                                                                                    • 61% of people currently owe money on a loan or credit product
                                                                                                                                                      • People rely on high-street providers, but specialists increase their reach
                                                                                                                                                        • Vehicle purchase is the main reason to take out a loan
                                                                                                                                                          • Borrowers want positive reinforcement and flexibility
                                                                                                                                                            • Consumers would consider a personal loan for small amounts
                                                                                                                                                              • Borrowing confuses people, and confusion drives them away
                                                                                                                                                              • Loan and Credit Product Ownership

                                                                                                                                                                • 61% of people currently owe money on a loan or credit product
                                                                                                                                                                  • Despite higher rates, credit cards and overdrafts are the most commonly held…
                                                                                                                                                                    • …but this is a good time to steer customers towards alternatives
                                                                                                                                                                      • Figure 33: Loan and credit product ownership, 2017-18
                                                                                                                                                                    • Parents significantly more likely to owe money…
                                                                                                                                                                      • Figure 34: Loan and credit product ownership, by parental status, 2018
                                                                                                                                                                    • …and to have multiple types of credit products
                                                                                                                                                                      • Parents need reassurance and support
                                                                                                                                                                        • Figure 35: Repertoire of loan and credit product ownership, by parental status, October 2018
                                                                                                                                                                    • Type of Loan Providers Used

                                                                                                                                                                      • Consumers more likely to rely on high-street providers
                                                                                                                                                                        • Specialist lenders continue to increase their reach
                                                                                                                                                                          • Figure 36: Type of loan provider used, by type of product, 2017/18
                                                                                                                                                                        • Borrowers continue to turn to high-cost credit
                                                                                                                                                                          • Figure 37: Unsecured credit ownership, by type of credit (net), October 2018
                                                                                                                                                                      • Reasons For Taking Out A Loan

                                                                                                                                                                        • Vehicle purchase is the main reason to take out a loan
                                                                                                                                                                          • The appeal of product-specific loans
                                                                                                                                                                            • Figure 38: Reasons for taking out a loan, October 2018
                                                                                                                                                                          • Borrowing to pay off debt or to make end meets
                                                                                                                                                                          • Interest in Loan Features

                                                                                                                                                                            • Borrowers want incentives and positive reinforcement
                                                                                                                                                                              • Figure 39: Interest in loan features, October 2018
                                                                                                                                                                            • Flexibility and customisation have a clear appeal…
                                                                                                                                                                              • …hence less interest for anything that restricts access to the funds
                                                                                                                                                                              • Minimum Value to Consider a Loan

                                                                                                                                                                                • Consumers would consider a personal loan for small amounts
                                                                                                                                                                                  • Figure 40: Minimum amount needed to consider a personal loan, October 2018
                                                                                                                                                                                • High demand for alternatives to short-term, low-value high-cost credit
                                                                                                                                                                                • Attitudes and Behaviours towards Borrowing

                                                                                                                                                                                  • Borrowing confuses people, and confusion drives them away
                                                                                                                                                                                    • Lenders need to get better at matching borrowers and credit products
                                                                                                                                                                                      • Figure 41: Attitudes and behaviours towards borrowing, October 2018
                                                                                                                                                                                    • Improving the pre-application process: more clarity and better support
                                                                                                                                                                                      • Figure 42: Agreement with the statement “it would be important for me to know how likely I am to be accepted for a loan before applying” – CHAID – Tree output, October 2018
                                                                                                                                                                                  • Appendix – Data Sources, Abbreviations, and Supporting Information

                                                                                                                                                                                      • Abbreviations
                                                                                                                                                                                        • Consumer research methodology
                                                                                                                                                                                          • CHAID analysis methodology
                                                                                                                                                                                            • Figure 43: Unsecured Loans – CHAID – Table output, October 2018
                                                                                                                                                                                        • Appendix – Market Size and Forecast

                                                                                                                                                                                          • Additional best/worst forecast table
                                                                                                                                                                                            • Figure 44: Best- and worst-case forecasts for the value of unsecured personal loans, by gross advances, 2018-23
                                                                                                                                                                                          • Forecast methodology

                                                                                                                                                                                          Unsecured Loans - UK - January 2019

                                                                                                                                                                                          US $2,552.20 (Excl.Tax)