Table of Contents
- Overview
- Executive Summary
- The UK home collected credit market became somewhat more attractive
again in 2006
- Home collected credit provides short-term, unsecured cash loans
typically in the region of £200 to £400
- Things are looking up for home collected credit, but growth remains
sluggish
- Balances outstanding increased by 5.3 per cent in 2006 after a
number of years of weak growth
- Its prospects have improved modestly, but the market' s future outlook
still reflects its mature nature
- Under the Datamonitor View scenario, the market will grow at a slow
pace over the next five years
- The competitive dynamics of the UK home collected credit sector create
further challenging conditions
- The market continues to be dominated by the ' big four'
- Provident leads the market with a significant 60.5 per cent share in
terms of balances outstanding
- Meanwhile, a number of other strategic changes are taking place
- Lenders need to stay ahead of challenges to benefit from what limited
growth the market has to offer
- Home credit providers will continue to face a number of challenges
- Table of Contents
- Table of figures
- Table of tables
- The UK home collected credit market became somewhat more attractive again
in 2006
- Home collected credit fills an important niche for small amounts of
unsecured credit
- Home collected credit provides short-term, unsecured cash loans
typically in the region of £200 to £400
- Home collected credit customers are part of a broader set of
non-standard individuals
- An element of subjectivity is needed with any definition of
non-standard
- Datamonitor estimates that there were 7.0 million non-standard
individuals in 2006
- The home credit market is a sub-sector of the non-standard unsecured
personal loans market
- Things are looking up for home collected credit, but growth remains
sluggish
- Datamonitor' s methodology for sizing the home collected credit market
is based on two measures
- Lenders implemented new accounting standards in 2005-6, which has
caused market figures to change
- Balances outstanding increased by 5.3 per cent in 2006 after a number
of years of weak growth
- Challenging economic conditions helped to push the market forwards in
2006
- Higher household bills made life more difficult for home credit
consumers
- Mainstream lenders tightened their lending criteria
- But the UK home collected credit market remains mature
- The home collected credit market has contracted over the last five
years, in contrast to other credit markets
- Its prospects have improved modestly, but the market' s future outlook
still reflects its mature nature
- Datamonitor' s forecasts consist of three different scenarios of the UK
economy
- Datamonitor' s forecasting model calculates home credit' s penetration
of the non-standard population
- Datamonitor' s bespoke forecasting model also considers drivers
specific to home collected credit
- In the Datamonitor View scenario, the market will grow at a slow pace
over the next five years
- In the Optimistic economic scenario, the market will decline gradually
over the next five years
- In the Pessimistic economic scenario, the market will grow
substantially over the next five years
- The competitive dynamics of the UK home collected credit sector create
further challenging conditions
- The market continues to be dominated by the ' big four'
- Provident leads the market with a significant 60.5 per cent share in
terms of balances outstanding
- The big four have maintained their dominant position for many years
- The majority of competitors experienced a rise in business over 2006
- Most of the large players in the market saw a rise in balances
outstanding in 2006
- Consolidation is providing some larger lenders with opportunities
- London Scottish Bank was the target of a number of potential
acquisition bids, but nothing materialized
- Park Group sold its book to Cattles in 2006 after battling with bad
debt and difficulty entering the market
- While some lenders reduce their exposure to the market, others are
refocusing on it anew
- Provident is renewing its focus on home credit, in addition to
continuing diversification
- Provident will be demerging its international division in 2007
- Provident is renewing its focus on UK home credit as it will be a
major part of its business going forward
- But diversification in the UK will still remain a priority
- Cattles continues to disengage from the home collected credit market
in search of better returns
- Cattles is instead focusing on its more profitable divisions
- London Scottish Bank is restructuring its unsecured loan business and
focusing on faster growth markets
- The company is reducing its number of branches as a way of trimming
losses
- Instead it is developing its debt collection and secured lending
businesses
- Home credit still remains its core product, but S&U continues to
diversify into other markets
- Lenders need to stay ahead of challenges to benefit from what limited
growth the market has to offer
- Lenders are relieved by proposed regulation, but it will still be
difficult for smaller players
- Regulatory scrutiny has been intense in recent years
- 2003 saw the first damning report on home collected credit appear
- The market then came under scrutiny by the Competition Commission
- Most lenders were satisfied and relieved by the Competition
Commission' s final report in November 2006
- Four remedies are to be implemented that will substantially increase
the competitiveness of the market
- Data sharing will aid in credit decisioning for lenders
- A price comparison website will ultimately lead to thinner margins
- Customers will be able to access better information
- Early settlement rebates will reduce lender profits substantially
- Importantly for lenders' survival, price maximums have been ruled out
- But regulatory costs are going to cause difficulties especially for
smaller lenders
- The jury is also still out on whether regulation will help in the
long-run if small lenders leave the market
- In the end, it could be that consumers pay the highest price in the
form of less competition
- With bad debt remaining an issue, lenders are having to readjust their
acquisition models
- Bad debt began rising in 2005 and continued in 2006
- Lenders are looking to balance quality and volume
- Lenders are investing in order to make better credit decisions as
well as relying increasingly on automation
- Customers are increasingly depending on more than one provider for their
credit needs
- Customer retention is an emerging issue that will increasingly affect
lenders
- Lenders must look to exploit the advantages of home credit in order
to retain customers
- Credit cards in particular are becoming an increasing competitive and
substitutionary force
- Competition from mainstream lenders has eased up lately due to more
difficult economic conditions
- The future of home credit will nevertheless eventually be in
plastic, so lenders should make the move now
- Though other sources of external credit still remain a small threat,
lenders cannot be complacent
- Government initiatives still pose little competitive threat
- Overdrafts and basic bank accounts for non-standard individuals are
not a replacement for home credit
- Credit unions do not pose a real competitive threat just yet
- Alternative commercial sources of credit nonetheless have the
potential to pose greater competitive threat
- Technology will become ever more important to success for the larger
lenders
- Large lenders are rolling out handheld computers to their agents in
order to become more cost efficient
- Though small lenders will not be able to afford such technology, it
will not hurt them substantially
- Lenders are also relying more on automation to improve their credit
decisioning
- APPENDIX
- Supplementary data
- Definitions
- AAGR
- Balances outstanding
- Bank of England base rate
- CAGR
- CCJs
- Gross advances
- Non-standard
- Methodology
- Sizing methodology for the UK non-standard population
- Reasons for credit rejection
- Elimination of double counting
- Datamonitor uses seven steps to size the UK non-standard population
- Bankrupts are excluded because of double counting
- Further reading
- Relevant links
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: Forecasted UK home collected market gross advances and the UK
non-standard population in the Datamonitor View scenario, 2006-2011f
- Table 2: Forecasted UK home collected market gross advances and the UK
non-standard population in the Optimistic economic scenario, 2006-2011f
- Table 3: Forecasted UK home collected market gross advances and the UK
non-standard population in the Pessimistic economic scenario, 2006-2011f
- Table 4: Estimated market share of the four leading providers in the
home collected credit market in terms of balances outstanding, 2002-2006
- Table 5: Estimated UK home collected credit balances outstanding by
competitor, 2002-2006
- Table 6: Home collected credit gross advances and balances
outstanding, 2002-2006
- Table 7: Proportion of total group balances outstanding for each of
Provident' s divisions, 2002-2006
- Table 8: Cattles' direct repayment and home collected credit customer
receivables and numbers, 2004-2006
- List of Figures
- Figure 1: The home collected credit market saw an improved performance
in 2006 after a number of years of stagnation, 2002-2006
- Figure 2: Under the Datamonitor View scenario, the home collected
credit market will grow slowly up to 2011, 2006-2011f
- Figure 3: The ' big four' players remain in control of the home
collected credit market, with almost 90 per cent of market share in 2006
in terms of balances outstanding
- Figure 4: Datamonitor' s definition of non-standard
- Figure 5: A certain degree of subjectivity is needed in a definition
of the non-standard population because some lenders are inevitably willing
to accept greater risk than others
- Figure 6: The non-standard population increased for the first time in
many years in 2006, 2002-2006
- Figure 7: The home collected credit market saw an improved performance
in 2006 after a number of years of stagnation, 2002-2006
- Figure 8: Compared to most mainstream lending markets, the home
collected market has performed very poorly over the last five years in
terms of new lending, 2002-2006
- Figure 9: In the Datamonitor View scenario, the home collected credit
market will grow slowly up to 2011, 2006-2011f
- Figure 10: In the Optimistic economic scenario, the home collected
credit market will decline over the next five years, 2006-2011f
- Figure 11: In the Pessimistic economic scenario, the home collected
credit market is forecast to grow significantly over the next five years,
2006-2011f
- Figure 12: The ' big four' players remain in control of the home
collected credit market, with almost 90 per cent market share in 2006 in
terms of balances outstanding
- Figure 13: The majority of large players saw a rise in balances over
2006, 2002-2006
- Figure 14: Provident' s international home collected credit division
and Vanquis Bank have become increasingly important to the company' s book,
2002-2006
- Figure 15: Cattles continues to focus upon its direct repayment
division at the expense of home collected credit, 2004-2006
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