Abstract
Introduction
The UK unsecured personal lending market continued to struggle during 2008.
The difficult conditions saw more lenders leaving the market and competition
levels declining as the focus was on retaining good customers. As a result,
average interest rates continued to climb.
Scope of this research
- Provides market shares of balances outstanding and gross advances for
major UK personal loan players
- Provides advertising spend for the top personal loan providers.
- Analyzes the key competitive developments in the UK market over the last
12 months.
Research and analysis highlights
The competitive landscape in unsecured personal lending remains subdued.
Lenders are looking to retrench towards their existing customer base to
effectively ride out the storm. This unwillingness to take on risky business
has meant that competitive dynamics are fairly minimal as lenders wait for the
market to recover.
In June 2008, there were 46 lenders offering unsecured personal loans, down
from 58 in June 2007. However, by June 2009 this number had dropped further to
just 37. Lenders felt that the volatile market had exposed those with weak
business models.
High impairment levels and the FSA' s ruling that single premium payment
protection insurance (PPI) should no longer be sold with a loan have presented
difficulties for lenders. While neither problem is insurmountable, the two
issues represent a drain on income which they are slowly overcoming. In
addition, further PPI rulings are possible.
Key reasons to purchase this research
- Gain an insight into the performance of your competitors.
- Understand how the market is changing and evaluate what opportunities
might arise from these changes.
- Learn how your competitors are adapting their strategies to the current
economic climate.
Table of Contents
DATAMONITOR VIEW
ANALYSIS
- Unsecured personal lending levels contracted in 2008 as the market
remained tough
- The unsecured personal lending market had five larger players and a
fringe of smaller players in 2008
- Lloyds Banking Group was the market leader in terms of balances
outstanding
- Competitive pressures remain low as loan providers direct their focus
internally
- The number of unsecured personal lenders has declined further over the
last year
- Financial institutions are adopting a prudent approach to their lending
policy
- For the largest lenders in particular, cross-selling to existing
customers is a favored practice, used in order to avoid taking on more risk
- The average interest rate for a £5,000 loan has increased despite
the plummeting base rates
- Advertising expenditure has also dropped as a result of the credit crunch
- Innovation in the UK personal lending market remains fairly minimal
- High levels of bad debt and the new PPI ruling are hurdles that lenders
need to overcome
- Bad debt levels remain high but are now at a manageable level
- The ban on the selling of single premium PPI will lead to lenders
finding other ways to recoup their outlay
- The current market conditions are impacting on the dynamics of other
players in the market
- Aggregators have been an important player in the market but they are
losing their influence under current market conditions
- The payday loan industry has taken advantage of the current market
conditions
APPENDIX
- Supplementary data
- Definitions
- Balances outstanding
- Bank of England base rate
- CAGR
- Gross advances
- PPI
- Methodology
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
TABLES
- Table: Unsecured personal lenders in the UK, Moneyfacts June 2009
- Table: Advertising spend for major providers, 2007 - 08
- Table: Comparison of monthly interest rates on a £5,000 loan
compared with the Bank of England base rate
- Table: Write-offs on consumer lending from UK banks and building societies
- Table: Average unsecured personal lending gross advances per person (over
18)
- Table: Extent to which consumers trust financial services companies
FIGURES
- Figure: The newly formed Lloyds Banking Group had a market leading share
of the gross advances in 2008
- Figure: Lloyds Banking Group has the largest share of balances outstanding
- Figure: Personal lending interest rates have increased significantly since
June 2008 despite sharp cuts in the Bank of England' s base rate
- Figure: Across most banking groups, advertising expenditure shrank between
2007 and 2008
- Figure: A fall in the level of write-offs in other unsecured lending
counteracted the increase in write-offs for credit cards and secured loans
- Figure: Despite strong performance in the credit card market, total
unsecured lending dropped continuously between 2004 and 2008
- Figure: Moneysupermarket.com lists all loans providers, but it does not
link to products where the provider has not paid a fee
- Figure: Online price comparison sites are more trusted than building
societies and banks
- Figure: The Wonga website emphasizes the convenience of the product
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