UK Point of Sale Finance Market Insight Report 2019



Published: Feb 2019
Pages: 74
Format: PDF / conf call






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Point of Sale Finance Market Insight Report 2019


This report focuses on the UK market for point of sale, or POS, finance.
Also known as retail finance, in-store credit or store instalment credit, it refers to loans provided by, or on behalf of, a retailer to enable a consumer to make a specific purchase.
This new edition of the report has been updated and extended to take into account recent growth in the market and to revise our market size estimates and 5-year forecasts.
The report quantifies the market size in loans outstanding, new lending and loan provider revenues, historical growth rates and levels of industry profitability. It also includes an in-depth analysis of the relevant drivers of industry growth setting out historical trends and available forecasts.

Objectives of the report

This report aims to answer a series of questions on the POS finance market:
– How does the market work? What changes have there been recently?
– What would be the impact of an interest rate rise?
– Which types of retailers use it most frequently?
– How does it compare with alterative and substitute forms of finance?
– What role has new technology played in the market?
– What is the market size and historical growth rate, in terms of total loans outstanding, new lending and lender revenues?
– What future growth can be forecast? What are the risks to future market growth?
– What hard evidence is there to support views of historical and forecast POS finance market growth? What are the POS finance market drivers and how have they trended?
– How does the market compare with those in other countries?
– Who are the main finance providers and principals, which are most widely used by retailers, how have they performed?
– In simple terms, what do they each do, who do they work for and how do they operate?
– What do the leading UK retailers do – to what extent do they use this form of finance, how do usage patterns vary by sector, which providers does each use and what is the extent of churn?


Market background

Point of sale (POS) finance – also called retail finance, in-store credit or store instalment credit – refers to fixed-term loans provided by, or on behalf of, a retailer to enable a consumer to make a specific purchase.
At present, many retailers choose to subsidise the cost of the credit as a promotional expenditure and offer “interest-free credit” or “zero per cent finance”.
It is used by both national retail chains and independent shops, most commonly in the home and furniture, jewellery and electricals sectors.
– Loans are generally set up as personal loans, not secured on the asset and without a lease arrangement.
– Interest-free loans are generally for 3-12 months with an APR of 0% (i.e. no additional fees are charged)
– Charged-for loans are generally for periods of 12-60 months with an APR of 15-20% being typical.

Market growth and drivers

The market for POS finance has grown quickly in recent years with new lending now over £6bn per year. The combined revenue of leading lenders approached £750m in 2017
It has been driven by trends in a range of demand and supply factors, including:
– Ongoing retail sales growth
– Growth of online sales, where POS penetration has recently increased significantly.
-The appetite of consumers for purchasing the kinds of items which tend to be financed in this way, which is likely to be related to the overall level retail sales but with more of an emphasis on discretionary purchases (big ticket leisure items) and furniture
– Consumer confidence in driving larger, discretionary purchases
– The overall performance of the economy as a driver of both retail sales and consumer confidence
– The availability of this form of credit, influenced to an extent by overall unsecured consumer borrowing levels
– Pricing of POS finance loans, particularly the current wide availability of interest-free deals.
– The impact of technology on the market with new apps enabling far quicker decision-making and higher application acceptance rates.
– The impact of regulations on the market.

Competitive landscape

The market consists of retailers, broker platforms and lenders.
In addition to most large retailers in the relevant retail sectors, around 9,000 independent retailers, including online-only stores, currently offer POS finance.
Key lenders dealing direct with retailers include Barclays Partner Finance. Close, BNP Paribas (Creation), Hitachi Capital, Ikano Bank and recent entrant, PayPal Credit.
Some larger retailers provide the finance from Group companies, including Home Retail Group and Shop Direct (Argos), often alongside other payment options including store cards. Others may extend the credit themselves but use finance company partners to administer the agreement.
Broker platforms include Deko (Pay4Later), V12 (part of Secure Trust Bank), Klarna and Divido.Some platforms now introduce a retailer’s customers to a single lender, although new entrants appear to be reviving the approach of matching customers to a suitable lender from their panel.
Lenders operating mainly through broker platforms include Conister Bank, Honeycomb, Lending Works, Omni, Paybreak and Secure Trust (via V12).
Amazon has tested POS finance in the UK and is considered likely to add POS credit to its payment options for larger purchases in the medium-term.
Most operators have grown in recent years. Aggregate margins across the sector grew steadily until 2013, but then fell for several years as firms adapted to deal with more costly regulatory requirements, including some cases involving customer remediation programmes. Profitability increased again last year however.



The outlook for the market remains positive despite expectations for overall economic growth and hence, consumer appetite for borrowing and retail spending, having been revised downwards in the last couple of years
We see the key risk to the market being if, as a result of high inflation or otherwise, interest rates were to rise significantly. As well as potentially damping down demand, this could also lead to retailers without FCA authorisations, who are only able to offer exempt credit, having to suspend their POS solutions.
Other key risks to market growth include UK macroeconomic performance in particular if there is a disorderly Brexit, a significant fall in the housing market reducing demand for big-ticket purchases, the development of new potential substitutes given UK fintech innovation and possible further regulation of POS finance products.

Who is the report intended for?

Operators of point of sale businesses themselves
Investors in these businesses
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
Research into 50 top UK retailers and their use of POS finance
A case study on retailers in the city of Salisbury
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 flex them where required to model alternative scenarios.

About this report 2
Summary 3
About Apex Insight 5
Contents 7
List of charts and tables 12

About the Market 14
POS finance is consumer credit for the purchase of specific goods or services 14
POS finance is provided as unsecured personal loans 15
Overview of market structure 16
Overview of products 17
Zero per cent finance 17
Market size by number of retailers 19
Physical stores 19
E-Commerce sites 19
Total retailers 19
Medical and associated finance 20
Local case study: Salisbury 20
Regulation of the POS market 21
Regulatory requirements 22
Obtaining FCA authorisations 23
Increasing use of technology for applications 23
Acceptance rates 24
POS terms offered by leading retailers 25
Adjacent markets include store cards and credit accounts 27
Store cards and credit accounts 27
Credit cards 27
Personal loans 27
Car finance 27
Mobile phone subscriptions 27
International comparisons with Europe, the US and Australia 28

Market size and growth 29
Market size trends 29
Market size since 2013 29
Lender revenues 31
Market drivers 31
Retail sales 32
Internet retail 32
Consumer confidence 33
GDP 33
Credit card penetration and spending 34
Consumer borrowing 34
Interbank rates 35
POS loan books as a proportion of retail sales 35
Lender yields 36
Bad debt rates 36

Competitive landscape 37
Financial performance of the leading operators 37
Overall market shares by lender 39
Market share by sectors and leading retailers 40
Market share of independent retailers 41
Volumes per independent retailers 41

Broker platform provider profiles 42
Divido Financial Services Ltd. 42
Description 42
History 42
Financials 42
Example clients 42
Klarna 43
Description 43
History 43
Financials 43
Key UK clients 43
Close acquisition 43
Deko (Pay4Later) 44
Description 44
History 44
Product 44
Financials 44
Key clients 44
V12 Retail Finance Ltd 45
Description 45
History 45
Products 45
Finance 45
Key clients 45
TrustaGo 46

Lender profiles 47
Home Retail Group Card Services Ltd. 47
Description 47
History 47
Financials 47
Recent News 47
Azule Ltd (t/a Azule Finance) 48
Description: 48
Financials: 48
Key Clients: 48
Barclays Partner Finance (Clydesdale Financial Services) 49
Description 49
History: 49
Types of Funding Structures: 49
Financials: 49
Key Clients: 49
BNP Paribas Personal Finance (Creation Consumer Finance Ltd) 50
Description 50
History: 50
Financials: 50
Key POS clients 50
Close Brothers Ltd. (Klarna) 52
Description 52
Financials 52
Key clients: 52
Partners: 52
Hitachi Capital 53
Description 53
History 53
Products 53
Financials 54
Key clients: 54
IKANO Bank AB 55
Description 55
History 55
Financials 55
Key clients 55
OMNI Capital Retail Finance Ltd 56
Description 56
History 56
Financials 56
Products 56
Key clients 56
Paybreak Limited (afforditNOW) 57
Description 57
Products 57
Financials 57
Key clients 57
PayPal 58
Background 58
Products 58
Financials 58
Rematch Credit Limited (DivideBuy) 59
Background 59
Products 59
Financials 59
Customers 59
Secure Trust Bank Plc 60
Description 60
History 60
Products 60
Finance 60
Key clients 60
Shop Direct 62
Description 62
History 62
Products 62
Finance 62
Other lender profiles 64
Caledonian Consumer Finance 64
Carnegie Consumer Finance 64
ClearPay 64
Conister Bank 64
Honeycomb Finance Limited 64
First Senior Finance Limited 64
Lending Works Limited 64
PayitMonthly Limited 65
Payment Assist Limited 65
Shawbrook Bank 65
Snap Finance Ltd. (Pay Weekly) 65
Social Money Ltd (Payl8r) 65
Specialist Lending Ltd (Duologi) 66
Tymit Limited 66
Vanquis Bank 66

Forecasts 67
Key drivers remain broadly favourable 67
Economic growth 67
Consumer borrowing and retail sales growth 67
Inflation 68
Forecast lending levels 69
Market revenue forecasts. 70
Market risks 71
No-deal Brexit 71
Significant interest rate rises 71
Other market risk factors 72
Competitive risk: Amazon 72
List of abbreviations 74

List of charts and tables

Scope of Point of sale (POS) finance market - channels 16
Number of independent stores offering POS finance 19
Usage of POS finance by leading UK retailers / number of retailers per sector vs penetration by sector (2018) 20
Key FCA regulatory requirements relevant to POS finance 22
POS terms offered by leading retailers 26
Lending to relevant segments by FLA members (new business) 29
Loan book size of leading POS loan funding providers / £m 29
New POS lending by year 30
Total market new POS lending / £m 30
Total market POS gross revenues / £m 31
Retail sales / annual % change 32
Internet retail as % of total retail sales 32
UK consumer confidence 33
UK real GDP / % annual changes 33
Number of credit cards in issue, spending on credit cards / m, £bn 34
UK outstanding unsecured consumer credit / £bn 34
Interbank interest rates 35
Combined loan book value as a percentage of retail sales 35
Combine d revenues as % of combined loan book value: top lenders 36
Impairments balance as % of retail POS loan book 36
Leading lender / broker POS finance revenue / £m 37
Revenue growth of top UK POS finance lenders / 2012-latest year CAGR % 37
Latest pre-tax profit margins of leading POS finance companies / % 38
Sector pre-tax margin trends / % 38
POS lenders’ market shares 39
POS firms’ retailer shares 41
Pay4Later Ltd. summary financials 44
V12 Retail Finance Ltd summary financials 45
Home Retail Group Card Services Ltd. summary financials 47
Azule Ltd summary financials 48
Clydesdale Financial Services Ltd summary financials 49
Creation Consumer Finance Ltd summary financials 50
Close Brothers Ltd summary financials 52
Hitachi Capital (UK) Plc summary financials 53
IKANO Bank AB summary financials 55
OMNI Capital Retail Finance Ltd summary financials 56
Secure Trust Bank Plc summary financials 60
Shop Direct Finance Company Limited summary financials 62
Unsecured consumer credit / £bn 67
Retail sales / annual % changes 68
UK Consumer Price Inflation (CPI) / % annual change 68
Combined loan books of leading POS finance lenders as a percentage of retail sales 69
Combined loan books of leading POS finance lenders / £m 69
Total market new POS lending / £m 70
POS finance revenue as a % of loan book 70
POS finance - forecast market size (aggregate revenues of top lenders) / £m 71

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