About this report
This market report reviews the UK online payday loans market. It quantifies the market size, historical growth rates, segmentation patterns and levels of industry profitability while reviewing key factors behind these figures.
It also contains an in-depth analysis of the relevant drivers of payday lending market growth – in particular the macroeconomic environment and regulatory framework – setting out historical trends and available forecasts. Our forecast for industry growth is based on this analysis of historical trends and growth drivers.
What are the objectives of this online payday loans market report?
Payday lending has emerged and grown into a major industry with customers measured in millions in just a few years.
The industry is frequently in the news but is not well understood. Lenders are often criticised for charging high rates of interest which exploit low-income consumers. They are also frequently praised for offering credit to those who cannot obtain it from mainstream sources and giving them an alternative to illegal loan sharks. This report aims to probe beneath these two statements, explore the factors which have driven the high rates of growth and provide a view on how likely it is to continue in the future.
This report does the following:
– Explains how the payday lending market operates
– Identifies and profiles the main competitors operating in it
– Provides insights into the needs of customers
– Quantifies the market size and gives detail on historical growth
– Sets out an independent market forecast with key assumptions stated and risks identified
This report is based on:
– Interviews with senior-level contacts across the high-cost credit market
– Extensive research into published industry sources
– 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 easily flex them to model alternative scenarios.
It can assist with the following tasks
– business planning and strategy formulation
– acquisition search and screening
– due diligence
– investment decision-making
– industry regulation and policy-making
It is intended for:
– Operators of payday lending businesses themselves
– Investors in these businesses
– Payday loans market regulators and policymakers
– Banks, analysts, consultants and other parties with interests in the sector
Online payday loans are intended to offer customers an immediate advance on their wages until payday.
Most borrowers report that they need the money to cope with an unexpected cost such as a car repair or vet bill.
Service levels are high with well-designed websites, quick and simple application processes followed by an instant decision and transfer of funds shortly afterwards.
Being designed for short lending periods measured in days, payday loans have particularly high APRs with levels typically being over 4,000%. Lenders and customers focus more on the £ cost to repay the loan than the APR
There is concern that a minority of borrowers roll over payday loans to meet living expenses or support repayments on other forms of credit. Given the costs involved, this is unlikely to be sustainable.
Market growth and drivers
The market has grown rapidly over the last five years from start-up to approach a value of £1bn.
This growth has resulted from the convergence of three key drivers:
– A significant increase in the number of customers in the subprime segments as a result of the economic downturn
– Significant reduction in the appetite of the mainstream banks for serving such customers
– The ‘light touch’ regulatory environment in the UK which has created an environment which is more favourable to high-cost credit providers than elsewhere in Western Europe and North America
With the exception of Wonga the leading online payday lenders, listed below, are US-owned
– Wonga, which has driven the growth of the market through highprofile marketing campaigns including TV advertising and football club sponsorship
– Cash America, which operates the number two payday lender, QuickQuid as well as a large network of pawnbroker stores in the US. It also has a fledgling longer-term loan brand, Pounds to Pocket
– Dollar Financial, the leading US operator of pawnbroking shops which now has almost half its revenue in the UK from The Money Shop chain and the Payday UK and Payday Express loan brands.
– Axcess Financial, which operates the Cash Generator and Cheque Centres high street chains as well as The Loan Store payday loans website
High street lenders such as pawnbrokers and money stores also offer payday loans but available evidence suggests that online lenders have c.85% of the total
The prospects for the market depend to a large extent on the key drivers outlined above (numbers of target customers, appetite of mainstream lenders for this segment, and regulation).
While each of these areas has specific uncertainties and risks which are examined individually and taken into account in our forecast – including the risk of tighter regulation following from the OFT’s current review of the sector – indications are that overall market conditions are likely to remain favourable.