UK Non-Prime Consumer Credit: Market Insight Report

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Published: September 2019
Pages: 92
Format: PDF & expert call

 

 

 

 

 

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UK Non-Prime Consumer Credit Market Insight Report 2019

About the report

Our review of the non-prime, or high-interest, consumer credit market describes the market for consumer credit agreements with average fixed interest rates over 30% per year, and profiles the main lenders involved in it. It includes:

  • Review of each of the segments in the market (see below)
  • Discussion of key segment issues including the impact of regulation, and sets out our estimates of historical and forecast growth for each.
  • A set of 45 lender profiles of those active in the sector, covering financial performance, ownership, loan products offered, market positioning, corporate activity and history of the lender.

 

We cover the following segments and lenders operating within them:

  • Guarantor finance (key providers include Amigo loans, Bamboo, and Non Standard Finance’s Trust Two and George Banco)
  • High Cost Short Term Credit (following the exit of several of the largest firms including WDFC, key providers now include CashEuroNet UK, Elevate Credit, Gain Credit and My Jar)
  • Home-collected credit (key providers include Morses Club, Non-Standard Finance and Provident)
  • Instalment credit including some second-charge mortgages (key providers include Non-Standard Finance’s Everyday Loans, Oakbrook Finance, Madison and Avant)
  • Motor finance (key providers include S&U plc’s Advantage, Blue Motor, Provident’s Moneybarn, and Startline)
  • Credit card and other revolving loans (key providers include CapitaOne, NewDay and Provident’s Vanquis)
  • Pawnbroking (key providers include H&T Group, Ramsdens Financial, and Speedloan Finance)
  • Logbook loans (key providers include Loans2Go, Greenlight Credit, and Norfolk Capital’s Mobile Money)
  • Rent-to-own (key providers include Caversham Finance’s Brighthouse and Temple Finance)

Increasingly, leading providers and their external investors are active in more than one segment

We estimate total loan receivables across the market at £10.7bn.

  • Average loan durations vary by segment from under 2 months to 30 months.
  • Loan impairment levels vary by segment from 5% to 25% of gross loans.
  • Average interest rates vary by segment from 30% fixed to 260% fixed

 

There was overall receivables growth of 15% from 2016 to 2018

  • Guarantor and instalment loans have shown strong growth following the significant fall in payday loans in 2015
  • Rent-to-own has been particularly strongly hit by FCA conduct regulation
  • Home credit and credit card segments are relatively mature and show more modest growth

 

Financial Conduct Authority regulation of consumer credit, together with Financial Ombudsman judgements based on compliance with FCA rules, remains a key driver of the market

  • The FCA is making new interventions in the Rent-to-own and Motor finance segments
  • Proving affordability of loans to non-prime customers is an increasing issue for providers in all segments

 

Other factors which have influenced the growth of the market, and which are analysed in the report, include:

  • General economic performance which influences the appetite of consumers for borrowing and also their ability to repay loans they take out
  • Overall consumer borrowing as, with many non-prime borrowers seeking to borrow for reasons similar to those of mainstream borrowers and availability of finance for both being subject to similar influences, demand for non-prime credit is likely to follow a similar trend to that of overall lending.
  • Levels of unemployment and underemployment, which affect the number of people who are in a position to obtain both non-prime and mainstream credit, as well as ability to repay loans
  • Trends in earnings from wages and benefits, which show that, while wages have grown in recent years, the government’s austerity agenda has led to significant working-age benefit cuts and that debt levels are high relative to earnings
  • Other workforce trends, such as self-employment and trade union membership, which show an increase in the precariousness of the labour force and a weakening of the ability of organised labour to increase wages
  • Trends in housing costs and affordability
  • Reduction in the number of bank branches and credit cards in circulation, which give some indication of reduced access to mainstream finance.
  • Personal insolvency levels, which remain high by historical standards
  • Rises in other measures of poverty such as food bank usage and rough sleeping levels, which confirm that the numbers in extreme poverty – who are likely to struggle to repay loans – are increasing

 

Who is the report intended for?

Operators of point of sale businesses themselves
Investors in these businesses
Retailers
Market regulators and policymakers
Banks, analysts, consultants and other parties with interests in the sector

What are the sources and methodology?

Interviews with senior-level contacts in the consumer credit industry
In-depth analysis of the macroeconomic environment and relevant market drivers
Financial analysis of the accounts of companies in the industry
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions
Market forecasts have been constructed using simple assumptions which are clearly stated. Supporting evidence is provided for our assumptions but readers can flex them where required to model alternative scenarios.

Who was the report written by?

Frank Proud

  • Frank founded Apex Insight in 2012 and set up our Consumer Credit practice
  • His background is strategy consulting, with two firms, Bridgewater and Burlington, which were originally founded by ex-Bain teams.
  • Subsequently, he was a senior member of the Transaction Support team at EY, advising private equity firms and corporate acquirers on commercial due diligence and other acquisition-related issues.
  • He leads Apex Insight’s consulting work for investors and clients in the industry
  • He has an MA in Economics from Cambridge University.

Julian Rose

  • Julian is a specialist in the regulation of asset finance markets including business leasing and consumer credit.
  • From 2008 to 2014 Julian was Head of Asset Finance at the Finance & Leasing Association.
  • His previous experience spans regulation with the Financial Reporting Council and Competition Commission (now the Competition and Markets Authority), management consulting with PwC and KPMG, and industry with NCR and UPS.
  • He is a Chartered Management Accountant and has Masters Degrees in Management from Boston University and Competition and Regulation from the University of East Anglia

About this report 2
What does this report contain? 2
What are the objectives of this report? 2
What are the sources and methodology? 2
Who was the report written by? 4
Frank Proud 4
Julian Rose 4
Summary 5
Market background 5
Market size and growth 5
About Apex Insight 7
Company background 7
Consulting services 7
Commercial / operational due diligence 7
Custom market analysis 7
Primary research 7
Growth strategy 7
Related research 7
Research subscriptions 7
About Apex Insight: example consumer credit research and consulting clients 8
Contents 9
List of charts and tables 15
Non-prime consumer credit market 17
Definition 17
Number of non-prime consumers 18
Non-prime consumer credit market segments 19
Market growth 20
Non-prime consumer credit segments 22
1. Guarantor Finance 22
Definition 22
Key players 22
Sector size 22
Sector trends 22
2. High Cost Short Term Credit (HCSTC) 23
Definition 23
Key players 23
Sector size and trends 23
Insight: Price cap makes traditional payday loans unprofitable 24
3. Home-collected Credit 25
Definition 25
Key players 25
Sector size 25
Sector trends 25
Source: Apex Insight analysis 25
4. Instalment Credit 26
Definition 26
Key players 26
Sector size 26
Sector trends 26
5. Motor finance 27
Definition 27
Significant players 27
Sector size and trends 27
Sector trends 27
Insight: Non-prime credit accounts for small part of car finance market 28
6. Credit cards and other revolving Loans 29
Definition 29
Key players 29
Sector size 29
Sector trends 29
7. Pawnbroking 30
Definition 30
Significant players 30
Sector size 30
Sector trends 30
8. Logbook loans 31
Definition 31
Significant players 31
Sector size 31
Sector trends 31
9. Rent-to-own 32
Definition 32
Significant players 32
Sector size 32
Sector trends 32
Insight: Non-prime finance slowly departs the high street 33
Alternatives 34
Credit unions 34
Community Development Finance Institutions 34
Fintech solutions 34
Government alternatives 34
Unauthorised lenders 34
Forecasts 35
High Cost Short Term Credit (HCSTC) 36
Home-collected credit 36
Instalment credit including some second-charge mortgages 36
Motor finance 36
Credit card and other revolving loans 36
Pawnbroking 36
Logbook loans 36
Rent-to-own 36
Drivers of Non-Prime Credit Usage 37
1. Economic growh 37
2. Consumer borrowing 38
3. Unemployment and underemployment 39
4. Wage growth and the impact of benefit policies 40
5. Levels of self-employment and trade union membership 42
6. Housing costs 43
7. Access to mainstream finance 44
8. Personal insolvency and bankruptcy 45
9. Other poverty indicators: food bank usage and rough sleeping 46
Non-Prime Credit Regulation 48
FCA regulation 48
Insight: Affordability regulation is key to the market 49
FOS complaints / losses 50
Financial performance of lenders 52
Productivity analysis 53
Firms leaving non-prime consumer credit 54
Major lenders (loan books >£20m) 55
1st Stop 55
Ownership 55
Corporate activity 55
Products 55
Advantage Finance 56
Ownership 56
Corporate activity 56
Products 56
Recent information 56
Amigo Loans 57
Ownership 57
Corporate activity 57
Products 57
Recent information 57
Avant Credit 58
Ownership 58
Corporate activity 58
Products 58
Other information 58
Bamboo 59
Ownership 59
Corporate activity 59
Products 59
Billing Finance 60
Ownership 60
Corporate activity 60
Products 60
Other information 60
Blue Motor 61
Ownership 61
Corporate activity 61
Products 61
Recent information 61
Capital One 62
Ownership 62
Products 62
CashEuroNet UK (Enova) 63
Ownership 63
Corporate activity 63
Products 63
Other information 63
Caversham Finance (Brighthouse) 64
Ownership 64
Corporate activity 64
Products 64
Recent information 64
Darwin loan solutions (Evolution, Progressive) 65
Ownership 65
Corporate activity 65
Products 65
Recent information 65
DJS (UK) 66
Ownership 66
Corporate activity 66
Products 66
Recent information 66
Elevate Credit International (Sunny) 67
Ownership 67
Corporate activity 67
Products 67
Recent information 67
First Response 68
Ownership 68
Corporate activity 68
Products 68
Other information 68
Gain Credit 69
Ownership 69
Products 69
H & T Group PLC (Harvey & Thompson) 70
Ownership 70
Corporate activity 70
Products 70
Other information 70
Indigo Michael (Safety Net Credit) 71
Ownership 71
Corporate activity 71
Products 71
Madison CF UK (118 118 Money) 72
Ownership 72
Corporate activity 72
Products 72
Other information 72
Marsh 73
Financials 73
Ownership 73
Corporate activity 73
Products 73
Other information 73
Morses Club 74
Ownership 74
Corporate activity 74
Products 74
Other information 74
Mutual 75
Ownership 75
Corporate activity 75
Products 75
Other information 75
MYJAR 76
Financials 76
Ownership 76
Products 76
Other information 76
New Day 77
Ownership 77
Corporate activity 77
Products 77
Ownership 78
Corporate activity 78
Products 78
Other information 78
Norfolk Capital 79
Ownership 79
Corporate activity 79
Products 79
Other information 79
Oakbrook Finance 80
Ownership 80
Corporate activity 80
Products 80
Other information 80
Private & Commercial 81
Ownership 81
Corporate activity 81
Products 81
Provident 82
Ownership 82
Corporate activity 82
Products 82
Other information 82
Startline 83
Ownership 83
Corporate activity 83
Products 83
Recent information 83
Temple Finance 84
Ownership 84
Corporate activity 84
Products 84
Other information 84
Other lenders (loan books £5m to £20m) 85
Active Securities 85
Cash on Go 85
Ferratum UK 86
Go Car Credit 86
Greenlight Credit 87
Instant Cash Loans 87
Loans2Go 88
Mallard Leasing 88
PDL Finance 89
Premium Plan 89
Ramsdens Financial 90
Speedloan Finance 90
Think Money 91
Uncle Buck Finance LLP 92
Valour Finance 92

List of charts and tables

Non-prime net receivables by sector 2018 (£ million) 5
Growth rates in non-prime receivables 2016-2018 (CAGR) 6
Revenue by non-prime segment 2018 (£ million) 19
New lending by non-prime segment 2018 (£ million) 19
Net receivables by non-prime segment 2018 (£ million) 20
Non-prime consumer credit net receivables - active firms (£ million) 20
Non-prime receivables growth (2016-2018 CAGR %) 21
Guarantor Finance sector key data December 2018 (estimates) 22
HCSTC new lending value (£ billion) 23
HCSTC Finance sector key data December 2018 (estimates) 23
Summary of profitability of HCSTC loans 24
Home Credit lenders revenue 25
Home collected credit sector key data December 2018 (estimates) 25
Instalment credit sector key data December 2018 (estimates) 26
Motor finance sector key data December 2018 (estimates) 27
Used car finance market shares by revenue, 2017 28
Credit cards and other revolving loans sector key data December 2018 (estimates) 29
Pawnbroking key data December 2018 (estimates) 30
Logbook loans key data December 2018 (estimates) 31
Rent-to-own key data December 2018 (estimates) 32
Number of high street stores offering non-prime consumer credit 33
Historical and forecast new non-prime lending by segment / £m 35
Historical and forecast new lending by segment excluding credit cards/ £m 35
UK real GDP / annual changes 37
UK historical & forecast unsecured household debt / £bn 38
Unemployment and underemployment / m 39
Number of people in employment / m 39
UK median earnings (current prices) / % annual change 40
UK welfare spending by recipient segment / % of GDP 41
UK household debt to income ratio 41
UK self-employed workers / ‘000 42
UK trade union membership / ‘000 42
Ratio of median house price to median gross annual residence-based earnings (England and Wales) 43
Number of UK bank branches 44
Number of credit cards in issue / m, end of year 44
Historical number of new personal insolvencies per year (England) / '000 45
Food bank usage/ ‘000 parcels distributed by Trussell Trust 46
Rough sleeping – England 47
Key FCA regulatory requirements relevant to Non-Prime Consumer Credit 48
Complaints handled by non-prime firms 50
Complaints handled by Financial Ombudsman Service 50
Volumes of new FOS complaints by product 51
Profitability and loan provisions of leading firms 52
Profitability and loan provisions of leading firms (excluding NewDay, Capital One) 52
Net loan receivables per employee, CAGR 2016-18 53
Non-prime consumer credit receivables (net of impairments) £ million 2017/8 54
Key firms leaving market 54
1st Stop Financials 55
1st Stop Receivables / £m 55
Advantage Finance Limited Financials 56
Advantage Finance Limited Receivables / £m 56
Amigo Loans Limited Summary Financials 57
Amigo Loans plc Receivables / £m 57
Bamboo Limited Summary Financials 59
Bamboo Limited Loan Receivables / £m 59
Billing Finance Limited Summary Financials 60
Blue Auto Holdings Limited Summay Financials 61
Capital One (Europe) PLC Summary Financials 62
Capital One (Europe) PLC Loan Receivables / £m 62
CashEuroNet UK Summary Financials 63
Caversham Finance Limited Summary Financials 64
Darwin Loan Solutions Limited Summary Financials 65
Darwin Loan Solutions Limited Loan Receivables / £m 65
DJS (UK) Limited Summary Financials 66
DJS (UK) Limited Loan Receivables / £m 66
Elevate Credit International Limited Summary Financials 67
Elevate Credit International Loan Receivables / £m 67
First Response Finance Limited Summary Financials 68
First Response Finance Limited Loan Receivables / £m 68
Gain Credit LLC Summary Financials 69
Gain Credit LLC Loan Receivables / £m 69
H&T Group Summary Financials 70
Indigo Michael Limited Summary Financials 71
Indigo Michael Limited Loan Receivables / £m 71
First Response Finance Limited Summary Financials 72
Madison CF UK Limited Loan Receivables / £m 72
Morses Club plc Summary Financials 74
Morses Club plc Loan Receivables / £m 74
Mutual Clothing and Supply Company Limited Summary Financials 75
Mutual Clothing and Supply Company Limited Loan Receivables / £m 75
MyJar Limited Summary Financials 76
NewDay Group (Jersey) Limited Summary Financials 77
NewDay Group (Jersey) Limited Loan Receivables / £m 77
Non-Standard Finance plc Summary Financials 78
Non-Standard Finance Loan Receivables / £m 78
UK Credit Limited and Mobile Money Limited Summary Financials 79
UK Credit Limited and Mobile Money Limited Loan Receivables / £m 79
Oakbrook Finance Limited Summary Financials 80
Oakbrook Finance Loan Receivables / £m 80
PCF Bank (Consumer Finance Division) Summary Financials 81
Provident Financial Group PLC Summary Financials 82
Provident Financial Group PLC Loan Receivables / £m 82
Startline Motor Finance Limited and Startline Auto Receivables Limited Summary Financials 83
Startline Auto Receivables Loan Receivables / £m 83
Temple Finance Limited Summary Financials 84
Temple Finance Limited Loan Receivables / £m 84

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