Contents:

TABLE OF CONTENTS CHAPTER 1 EXECUTIVE SUMMARY 3 Introduction 3 Market context 3 Competitive dynamics 6 The Future Decoded 9 CHAPTER 2 INTRODUCTION 23 What is this report about? 23 Who is the target reader? 23 How to use this report 24 CHAPTER 3 MARKET CONTEXT 25 Introduction 25 Consumer credit has exploded 25 Credit aggregates stood at AUS$95.9 billion at the end of 2003 25 Consumer lending commitments surpassed AUS$65.0 billion in 2003 27 Macroeconomic conditions have been conducive to growth in consumer credit 30 Lower rates have made borrowing more affordable 38 Personal loans: still the major component of the Australian personal lending market 39 Personal loan balances outstanding stood at AUS$52.2 billion in 2003 39 Credit cards: a star product in the Australian personal lending market 41 Credit card balances have hit a record high 42 Major changes are now on the cards 53 Overdrafts: a stale product category 58 Balances outstanding on overdrafts now amount to less than AUS$10 billion 58 Margin loans: not for the faint hearted 60 Margin loans explained 60 Retail finance: an alternative credit source 64 Sizing the retail finance market 64 Overindebtedness: the negative side of the consumer credit explosion 66 Measuring the extent of indebtedness 66 Determining the extent of overindebtedness 72 Insufficent credit record information contributes to the problem of overindebtedness 80 Indebtedness: is there cause for concern? 82 Conclusion 83 CHAPTER 4 COMPETITIVE DYNAMICS 84 Competitor balances outstanding 84 Personal loan market: the big five have lost market share 84 Credit cards: the big five hold more than 80 per cent of the market 87 Overdrafts: balances outstanding for the largest five banks grow slowly as the market stagnates 90 Pricing strategies in the Australian personal loan market 92 Possible loan pricing strategies 92 The reflection of changes to the interchange regime in the credit card market 96 Reward schemes are being cut back 96 The charge card companies stand to benefit 97 The growing differentiation within the credit card market 98 Low rate and high rate cards 98 Innovative products in the Australian personal lending market 102 Flexible credit cards come to Australia 103 Commonwealth Bank enters the Platinum card market 107 Equity unlock loans: awareness is growing 109 The St George Get Set Loan: an excellent customer retention tool 111 Competitor profiles 112 Virgin Money: shaking up the Australian credit card market 112 The view of the Datamonitor financial services team 117 GE: targeting the personal lending market on a number of fronts 119 The view of the Datamonitor financial services team 123 Conclusion 124 CHAPTER 5 THE FUTURE DECODED 126 Future competitive threats 126 Existing financial services providers 126 European banks 127 The online players 128 Asian banks 128 Other overseas entrants from within financial services 129 Entrants from outside of financial services 130 Market forecasts 131 Neutral scenario: still strong growth 132 Pessimistic scenario: a slowdown hits 135 CHAPTER 6 APPENDIX 139 Supplementary data 139 Market Context 139 Competitive Dynamics 144 The Future Decoded 146 Definitions 146 Research methodology 150 Market sizing methodology 150 Personal loans 150 Overdrafts 151 Forecasting methodology 151 Relevant readings 151 Briefings 151 Reports 152 Future readings 152 Briefings 152 Reports 152 Relevant links 153 Datamonitor’s custom research capabilities 153 SPP writing team 155 How to contact experts in your industry 155 LIST OF TABLES Table 1: Australian consumer credit aggregates, 1994-2003 27 Table 2: Australian consumer lending commitments, 1994-2003e 30 Table 3: Balances outstanding on personal loans, 1994-2003 41 Table 4: Australian credit card balances outstanding, 1994-2003 44 Table 5: Number of credit card accounts in Australia with and without an interest free period, 1994-2003 47 Table 6: Average monthly spending on credit and debit cards, 1994-2003 49 Table 7: Credit card spending as a percentage of retail trade, 1994-2003 50 Table 8: Total aggregate value of credit limits on Australian credit cards, 1994-2003 52 Table 9: Balances outstanding on personal overdrafts, 1999-2003 59 Table 10: The average number of margin calls per day per 1,000 clients and the All Ordinaries Price Index, September 2000-December 2003 62 Table 11: Balances outstanding on margin loans and number of margin loan client accounts, September 2000 – December 2003 64 Table 12: Total personal and housing debt outstanding per Australian adult, 1999-2003 68 Table 13: Personal debt outstanding per person in the UK, 1994-2003e 70 Table 14: Credit card balances outstanding per account and per person, 1999-2003 71 Table 16: Competitor balances outstanding in the Australian personal loan market, 1999-2003 86 Table 17: Competitor balances outstanding in the Australian credit card market, 1999-2003 89 Table 18: Competitor balances outstanding in the Australian personal overdraft market, 1999-2003 92 Table 19: The ten standard credit cards with the lowest interest rates, February 2004 99 Table 20: The ten standard credit cards with the highest interest rates, February 2004 102 Table 21: Competitors in the Australian Platinum cards market 108 Table 22: Equity unlock loans on offer in the Australian market 110 Table 23: Options available on the Virgin credit card (UK) 115 Table 24: Direction ratings of future competitive entry into the Australian personal lending market 131 Table 25: Neutral scenario forecasts of macroeconomic variables, 2004f-2008f, 133 Table 26: Forecasts of product balances outstanding under Datamonitor’s neutral scenario, 2004f-2008f 135 Table 27: Pessimistic scenario forecasts of macroeconomic variables, 2004f-2008f, 136 Table 28: Forecasts of product balances outstanding under Datamonitor’s pessimistic scenario, 2004f-2008f 138 Table 29: Lending commitments for refinancing, 1994-2003e 139 Table 30: Average exchange rates, 1994-2003 140 Table 31: Disposable income, personal debt and housing debt, March 1990 – September 2003 141 Table 15: Causes of personal insolvency, 2001/2002 and 2002/2003 142 Table 32: Number of Part IV and XI bankruptcies, 1986/87 – 2002/2003 142 Table 33: Part X agreements and debt agreements, 1986/87 – 2002/2003 143 Table 34: Number of debt agreements reached by state, Q4 2002-Q4 2003 143 Table 35: Competitor percentage market shares in the Australian personal loan market, 1999-2003 144 Table 36: Competitor percentage market shares in the Australian credit card market, 1999-2003 145 Table 37: Competitor percentage market shares in the Australian personal overdraft market, 1999-2003 145 Table 38: Forecasts of product balances outstanding under Datamonitor’s neutral scenario, 2004f-2008f, market share by product 146 Table 39: Forecasts of product balances outstanding under Datamonitor’s pessimistic scenario, 2004f-2008f, market share by product 146 LIST OF FIGURES Figure 1: Consumer credit aggregates stood at AUS$95.9 billion at the end of 2003 having grown by more than 25 per cent over the previous two years 4 Figure 2: Average monthly spending on credit cards during 2003 was more than double that on debit cards 5 Figure 3: Commonwealth Bank remains the largest player in the Australian credit card market with balances outstanding of AUS$5.2 billion and a market share of 23.1 per cent 7 Figure 4: Consumer credit aggregates stood at AUS$95.9 billion at the end of 2003 having grown by more than 25 per cent over the previous two years 25 Figure 5: Personal fixed and revolving lending commitments have increased significantly in the last ten years but the most dramatic growth has been in revolving commitments 28 Figure 6: Though increased twice towards the end of 2003 the Reserve Bank’s cash rate target remains low 31 Figure 7: Australian GDP growth remains fairly strong 32 Figure 8: Retail trade in 2003 amounted to more than AUS$180 billion 33 Figure 9: At the end of the first half of 2003 the Australian house price index for an established house stood at 224 index points 34 Figure 10: Over the last few years lending commitments for refinancing have increased dramatically by at least 25 per cent per year 35 Figure 11: Evidence that the Australian housing market is slowing down 36 Figure 12: Lending rates have fallen since 1990 tracking the cash rate target 38 Figure 13: Balances outstanding on personal loans have increased dramatically during the last two years. At the end of 2003 balances outstanding stood at AUS$52.2 billion 39 Figure 14: Balances outstanding on Australian credit cards amounted to AUS$24.1 billion at the end of 2003 42 Figure 15: December 2003 saw credit card balances outstanding increase by AUS$0.8 billion, the largest increase in monetary terms since records began 44 Figure 16: The number of credit card accounts in Australia is now nearing 10 million 45 Figure 17: Average monthly spending on credit cards during 2003 was more than double that on debit cards 47 Figure 18: Since 2000 credit card spending has amounted to more than 50 per cent of retail trade 49 Figure 19: The total aggregate value of credit limits on Australian credit cards has increased by 274 per cent since 1994 50 Figure 20: New interchange fees introduced at the end of October 2003 54 Figure 21: Balances outstanding on personal overdrafts amounted to AUS$9.6 billion at the end of September 2003 having increased from AUS$8.2 billion in September 1999 58 Figure 22: The average number of margin calls per day per 1,000 clients peaked in September 2001 and March 2003, two months when share market performance was particularly poor 60 Figure 23: The number of investors using margin loans continues to increase as does the amount being invested. The aggregate value of margin loans outstanding in the last quarter of 2003 amounted to AUS$12.5 billion 62 Figure 24: At the end of 2003 there was more than AUS$35,000 in personal and housing debt outstanding per Australian adult 66 Figure 25: Datamonitor estimates that at the end of 2003 the average adult in the UK owed GBP£4,426 in personal debt 68 Figure 26: At the end of 2003 an average of AUS$2,466 was outstanding on each Australian credit card account 70 Figure 27: While until recently personal debt has increased in line with disposable income, housing debt has shot upwards 71 Figure 28: Excessive use of credit remains the second most common cause of personal insolvency 73 Figure 29: After increasing in the late 1990s, the number of Part IV and XI bankruptcies has plateaued in the last few years 74 Figure 30: The number of Part IX debt agreements has shot up since their introduction in December 1996. In the meantime the number of Part X Agreements has fallen to less than 300 during 2002/2003 76 Figure 31: New South Wales and South Australia witnessed large increases in the number of debt agreements reached between Q4 2002 and Q4 2003 77 Figure 32: The ‘big five’ now have combined personal loan balances outstanding of AUS$39.1 billion 84 Figure 33: Commonwealth Bank remains the largest player in the Australian credit card market with balances outstanding of AUS$5.2 billion and a market share of 23.1 per cent 87 Figure 34: Combined personal overdraft balances outstanding for the largest four players have stagnated in a slowly growing market 90 Figure 35: Possible loan pricing strategies 92 Figure 36: Website interactivity allows Intech Titanium Visa applicants to determine the characteristics of their credit card 103 Figure 37: The St George It’s Your Choice card program 105 Figure 38: In the UK Virgin has not only sustained its low rates. The rate on its lowest rate card option is now further below the market average APR than when the card was launched 115 Figure 39: SWOT analysis of Virgin Money 118 Figure 40: SWOT analysis of GE 123 Figure 41: Total consumer credit balances outstanding in 2008 will amount to AUS$109.3 billion 133 Figure 42: Total consumer credit balances outstanding in 2008 will amount to AUS$74.8 billion 136 Figure 43: The research methodology used in Personal Lending in Australia 2004 149 Figure 44: Datamonitor’s core consulting capabilities 153