UK Personal Loan Distribution 2009

UK Personal Loan Distribution 2009 published by Datamonitor in February, 2010. This report consists of Pages: 92 and the price starts from US $ 4495.

Introduction

Abstract

Introduction

The intermediary channel has been hit hard by the recession as business has dried up in general. Lenders are looking to avoid taking on excessive risk by focusing on existing customers. The rise in the popularity of the internet has been tempered by a desire on the part of consumers for more face-to-face advice in a branch. Call centers also remain an important channel of arrangement.

Scope of this research

• Sizes and forecasts the popularity of different distribution channels in terms of arrangement of secured and unsecured personal loans.
• Uses Datamonitor' s proprietary Retail Banking Survey to gain more of an insight into consumers' behaviour regarding personal loan products.
• Analyses the results of Datamonitor' s Intermediary Distribution Survey to understand intermediaries attitudes in the market.

Research and analysis highlights

Branches have seen a resurgence during the credit crunch for the arrangement of personal loans. For secured personal loans, more than one third of respondents went through the branch, whereas the intermediary channel, which has traditionally performed strongly was used by less than 10%.

The arrival of new entrants from outside the world of UK financial services could shake up the personal loans market. Entrants such as Tesco can bring their experience from running a successful retail operation to attract customers from the incumbent players.

The internet has encouraged innovation in the type of lending available. Peer-to-peer lending through websites such as lendingkarma and Zopa have become popular in the US but their success has not yet translated to the UK market. Nonetheless other websites such as Wonga are looking to differentiate themselves through the type of lending they offer.

Key reasons to purchase this research

• Provides lenders with an understanding of the dynamics of personal loan distribution and how it is likely to develop over the next few years.
• Uses proprietary surveys to provide insight into the behaviors and attitudes of consumers and intermediaries to the current the market conditions.
• Presents forecasts for the performance of different channels and the personal loans market as a whole, split into both secured and unsecured loans.

Table of Contents

OVERVIEW

• Catalyst
• Summary

EXECUTIVE SUMMARY

• The market for personal loans continued to decline in 2008 and 2009
  • Total personal lending volumes declined significantly between 2004 and Q3 2009

• Lenders are focusing on their existing customer base rather than on attracting new borrowers
  • Lenders are focusing on their core customer base when selling loans
  • The sale of loans has fallen, but branches are an important part of the distribution of loans

• Intermediaries concentrate on pricing issues when deciding upon their choice of lender
  • Competitive pricing is the most important feature for intermediaries when choosing a lender

OVERVIEW OF PERSONAL LOAN DISTRIBUTION

• The market for personal loans continued to decline in 2008 and 2009
  • Total personal lending volumes declined significantly between 2004 and Q3 2009
  • UK lenders offer secured and unsecured loans, products that are quite different
  • The decline in personal lending has been more acute in the secured market

• The personal loan market is expected to recover slowly over the next couple of years
  • Unsecured personal lending is expected to grow by 5.9% between 2009 and 2013
  • Secured personal lending is expected to grow by 6.2% between 2009 and 2013

• Personal loans continue to be distributed through an array of distribution channels
  • Personal loans can be taken out through three main routes
  • Datamonitor' s retail banking survey provides insight into consumers' channel usage
  • Direct through the internet is the most important channel of arrangement for unsecured personal loans
  • The popularity of bank branches has remained steady as consumers put renewed importance on face-to-face contact

• The distribution of personal loans via direct channels is expected to remain popular over the next few years
  • Direct lending will continue to dominate the indirect proposition for unsecured personal loans
  • Intermediaries will see their share of the secured market pick up after a large fall during the economic crisis

DIRECT LOAN DISTRIBUTION

• Lenders are focusing on their existing customer base rather than on attracting new borrowers
  • Lenders are focusing on their core customer base when selling loans
  • The sale of loans has fallen, but branches are an important part of the distribution of loans
  • Borrowers tended to favor the same channel for loan applications and arrangement

• New entrants into banking may have an impact on the popularity of different distribution channels for loans
  • The arrival of Tesco Bank could shake up the personal loans market
  • Metro Bank is entering the retail banking market, placing a real emphasis on service
  • Virgin Money' s purchase of Church House Trust gave it a ' ready-made' banking license
  • Other retailers have also expressed some interest in developing a full retail banking proposition
  • Banks can use tricks from retailers to successfully improve their sales through branches

• Lenders have looked to make their branches more exciting for consumers
  • Banks have made further steps to improve the customer experience in branches
  • Banks and building societies appreciate the importance of bank networks despite the costs
  • There has been a general decline in the number of bank branches available for consumers

• Internet personal loan offerings continue to develop
  • The online channel tends to encourage the arrangement of larger loans
  • The online channel is more popular for unsecured rather than secured personal loans
  • HSBC' s Assisted Internet program aims to understand barriers to online activity
  • Security concerns remain for consumers considering using an online distribution channel
  • The banning of point-of-sale PPI will see lenders factoring in the lost revenue into loan pricing
  • Aggregators use different methods to generate revenue from loan distribution
  • The internet has encouraged innovation in the types of lending available

• The use of direct mail to distribute loans represents a declining part of the market
  • Various factors have combined to limit the popularity of direct mail as a channel of arrangement
  • Direct mail makes up the majority of unsecured personal lending advertising expenditure
  • Direct mail also plays a key role in advertising for secured personal loans
  • Direct mail allows lenders to cross-sell products

• Call centers remain an integral part of lenders' strategies
  • The call center model provides both benefits and drawbacks
  • Call centers may be used reactively and proactively to build up a relationship with the customer

INTERMEDIARY LOAN DISTRIBUTION

• Intermediaries in the personal lending market focus on secured personal loans
  • Intermediaries remain stronger in the secured personal loan market because of its small size and non-standard basis
  • Four out of five intermediaries offer secured personal loans
  • More intermediaries principally or solely offer secured personal loans
  • Intermediaries are undecided as to whether lenders are currently focusing more on direct lending
  • Intermediaries tend to be pessimistic about their share of the market in 2010

• The personal loan market is beginning to recover, and Abbey is in the best position to benefit from this
  • Although brokers in the secured loan market have suffered, there have been some signs of improvement
  • Abbey and HBOS/Halifax are the most popular secured loan providers
  • Abbey and HBOS/Halifax are also the most popular lenders for unsecured personal loan intermediaries

• Commission levels have shown signs of decline, prompting intermediaries to cut costs
  • The majority of intermediaries have not witnessed a fall in their average commission over the last year
  • A greater proportion of intermediaries have seen a fall in secured loan commission levels
  • Intermediaries are most interested in cross-selling and commission opportunities as methods to cope with the loss of income

• Intermediaries concentrate on pricing issues when deciding upon their choice of lender
  • Competitive pricing is the most important feature for intermediaries when choosing a lender
  • Better rates and a speedier service are the biggest factors in persuading intermediaries to switch lender
  • Intermediaries tend to agree that consumers will demand more credit and lenders will accept more customers over the next 12 months

• The fallout from the credit crunch has resulted in the availability of fewer loan products
  • The median number of loans arranged by intermediaries was significantly lower than in previous years
  • The median broker lent £100,000 in loans
  • Intermediaries tended to agree that the sub-prime sector had suffered due to fewer players
  • The consensus among intermediaries is that their overall level of personal lending declined in 2009
  • There is little optimism that individual brokers will increase their lending level in 2010
  • Intermediaries tended to show the greatest levels of concern about commission and fees

• Intermediaries continue to face some tough challenges in maintaining their customer base
  • Intermediaries had some success maintaining their customer bases during 2009
  • Intermediaries are having to turn business down because of the tough conditions in the market

APPENDIX

• Supplementary data
  • Overview of Personal Loan Distribution chapter
  • Direct Loan Distribution chapter
  • Intermediary Loan Distribution chapter

• Definitions
  • Balances outstanding
  • CAGR
  • Fixed rate personal loan
  • Gross advances
  • Non-standard
  • Online aggregator
  • POS
  • Secured personal loan
  • Unsecured personal loan

• Methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Proportion of intermediaries that believe lenders are focusing more on direct distribution than intermediary distribution by size of customer base
• Table: Proportion of intermediaries that believe they are losing share of new lending to direct distribution by opinion on change in size of customer base over the last 12 months
• Table: Performance of secured and unsecured personal loans in 2009 compared to 2008
• Table: Gross advances for personal loans, 2004 to Q3 2009
• Table: Gross advances for secured and unsecured personal loans, 2004 to Q3 2009
• Table: Gross advances for secured and unsecured personal loans, 2009e to 2013f
• Table: Channel of arrangement: secured personal loan
• Table: Channel of arrangement: unsecured personal loan
• Table: Forecasts for unsecured personal loan distribution channels, 2009e - 2013f
• Table: Forecasts for secured personal loan distribution channels, 2009e - 2013f
• Table: Channel of application for unsecured loan (vertical) by channel of arrangement (horizontal)
• Table: Channel of application for secured loan (vertical) by channel of arrangement (horizontal)
• Table: Number of bank branches in the UK, 2003 - 08
• Table: Total advertising revenue, unsecured personal loans, H1 2009
• Table: Total advertising revenue, secured personal loans, H1 2009
• Table: Products offered to consumers
• Table: Percentage of lending comprised of unsecured and secured loans
• Table: Focus of lenders in current market conditions
• Table: Current impact of direct distribution on intermediary share
• Table: Anticipated intermediary share in 2010 in comparison with 2009
• Table: Most common lenders used by intermediaries for secured personal loans
• Table: Most common lenders used by intermediaries for unsecured personal loans
• Table: Performance of average commission/fee for personal loans
• Table: Performance of fee/commission income over the last 12 months
• Table: Measures taken to deal with loss in income
• Table: Importance of features in choice of number one lender
• Table: Importance of factors in choosing new lender
• Table: Expectations for situation over the next 12 months
• Table: Agreement with statements about sub-prime personal loans
• Table: Change in value lent in past 12 months against previous 12 months
• Table: Expectations of change in total value lent over next 12 months
• Table: Level of concern regarding different factors facing intermediary business
• Table: Change in customer base over last 12 months
• Table: Proportion of loan customers turned down due to difficulty finding credit

FIGURES

• Figure: The decline in total personal lending began to pick up pace in 2006 despite the economic boom
• Figure: Competitive pricing and customers getting the advertised rate are the most important factors in choice of lender for intermediaries
• Figure: The decline in total personal lending began to pick up pace in 2006 despite the economic boom
• Figure: Both secured and unsecured lending levels declined significantly between 2006 and 2008
• Figure: Unsecured personal loans will begin to pick up in 2011 before the recovery gains pace in 2012
• Figure: The secured personal loan market will begin to recover in 2011 although from a very low base
• Figure: The personal loan intermediary market has a straightforward structure
• Figure: Visiting the lender is the most popular method of arranging secured personal loans
• Figure: Going direct with the supplier via the internet is the most popular channel of arrangement for unsecured personal loans
• Figure: The mix of unsecured loan channels is unlikely to change significantly over the next few years
• Figure: The intermediary channel will begin to recover its share of secured lending over the forecast period
• Figure: The majority of those who applied face-to-face or through the internet arranged their unsecured loan the same way
• Figure: There is also a strong correlation between application and arrangement for secured lending
• Figure: The incumbents in UK retail banking face an assault from various new players across various channels
• Figure: The new HSBC branch in Reigate and Barclays flagship branch in London show the future of bank branches
• Figure: The decline in the number of bank branches slowed between 2007 and 2008
• Figure: Wonga emphasizes speed and simplicity of its short term loan products
• Figure: Unsecured lending advertising expenditure has fallen but is still dominated by direct mail
• Figure: Secured advertising expenditure is much lower than unsecured but also dominated by direct mail
• Figure: Personal loan intermediaries are more likely to offer secured loans
• Figure: Intermediaries tend to dedicate more of their business to secured lending
• Figure: Only a small percentage of intermediaries feel that their market share will grow in 2010
• Figure: Abbey and HBOS/Halifax are the most popular lenders for secured loan intermediaries
• Figure: Abbey and HBOS/Halifax are also the most popular for unsecured loan intermediaries
• Figure: More than one third of intermediaries have seen a fall in their average commission or fees
• Figure: A greater proportion of intermediaries who offer the product have seen a fall in secured rather than unsecured loan commission
• Figure: Cross-selling and cost reduction are key factors intermediaries have introduced to deal with a loss in income
• Figure: Competitive pricing and customers getting the advertised rate are the most important factors in choice of lender for intermediaries
• Figure: Better rates are the most important factor in encouraging intermediaries to choose a new lender
• Figure: Almost two thirds of intermediaries feel that consumer demand for credit will rise over the next 12 months
• Figure: The mean number of loans arranged by intermediaries was five, with one provider arranging 2,500
• Figure: The majority of personal loan providers offered loans with a total value of £200,000 or less
• Figure: Intermediaries tend to agree that sub-prime lending has shrunk considerably
• Figure: More than half of the respondents believe that the overall amount lent has fallen
• Figure: A large proportion of respondents feel that lending levels in 2010 will be the same as in 2009
• Figure: Commission and fees are the most pressing concerns for intermediaries, although relationships with clients are also a concern
• Figure: Intermediaries tended to feel that their customer base had stayed the same or fallen over the previous 12 months
• Figure: More than a third of intermediaries are turning down at least half of their personal loan customers

Related Reports