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UK High-Cost Short-Term Credit Market Insight Report 2018

  • Report

  • 66 Pages
  • May 2018
  • Region: United Kingdom
  • Apex Insight
  • ID: 4802149

This report is focused on the High-Cost Short-Term Credit (HCSTC) market, including payday loans, in the UK. It also includes an overview of other similar high cost general loan products.

The author quantifies the market size, historical growth rates, segmentation patterns and levels of industry profitability while reviewing key factors behind these figures.

They also carry out an in-depth analysis of the relevant drivers of industry growth – in particular the macroeconomic environment and regulatory framework – setting out historical trends and available forecasts.

The author's forecast for industry growth is based on this analysis of historical trends and growth drivers, with a focus on the effects of regulation on the profitability of HCTSC providers.

Over the last decade HCSTC lending has emerged and grown into a major industry with customers measured in millions.

  • The HCTSC industry, previously characterised as the ‘payday lending industry’, is frequently in the news.
  • Particularly prior to the FCA’s price control regulation, lenders were often criticised for charging excessive rates of interest and fees which allegedly exploit low-income consumers. However, many lenders inspired high levels of customer loyalty and enjoyed satisfaction rates that would be the envy of the mainstream banks.
  • The FCA has imposed stringent regulations on the market including – highly unusually – a price control mechanism. When it introduced the new regulations it forecast that only four or five of around 400 payday loan providers would remain in the market. Although many firms have withdrawn there are still at least 30 active High-Cost Short-Term Credit market participants and even some new entrants.

This report aims to explore the industry behind these apparent contradictions, probe the factors which have driven its historical growth and recent decrease in size and provide a view on how the market is likely to perform in the future, setting out the reasons why The author believes this is a probable outcome.

Other questions the report considers include:

  • Why did the High-Cost Short-Term Credit market grow so rapidly in the UK and what factors have made it develop more rapidly here than elsewhere?
  • Who are the main companies in the market, who owns them and how have they performed?
  • What impact has the FCA’s price cap had on the market?
  • How have lenders adjusted their business models in response to it?
  • What further impact might regulation have on both the HCSTC and other HCC lending markets in the future?

Table of Contents

About this report
  • Market definition
  • Market background
  • Market growth and drivers
  • Competitive Landscape
  • Value drivers for HCSTC lenders
  • Outlook
About the author
Market overview
  • Market definition
  • Market features
  • Application processes
  • History of HCSTC in the UK
  • Recent market developments
  • Alternatives to HCSTC
  • Borrowing costs
  • Affiliate marketing and ping trees
Market Size and Growth
  • Market size by revenue
  • Market size by revenue
  • Number of firms in the HCSTC market
Drivers of HCSTC market demand
  • Economic performance
  • Employment, underemployment and self-employment
  • Overall demand for unsecured consumer credit
  • Availability of alternatives
  • Until April 2014, the industry was regulated by the OFT
  • Consumer credit transferred to the FCA in 2014
  • Competition and Markets Authority enquiry
  • Broadcast Committee of Advertising Practice review
  • Other developments
  • FCA review of high-cost credit
  • Recent developments
  • Consumer Finance Association
  • HCSTC regulation in other countries
  • Implications of the FCA price caps
  • Industry response to price caps
  • Case study: Enova
Competitive Landscape
  • Industry profitability
  • Customer ratings of leading providers
  • Complaints to Financial Ombudsman
  • Website popularity
Profiles of leading lenders
  • CashEuroNet UK LLC (owned by Enova, formerly Cash America)
  • Elevate Credit International Ltd (formerly Think Finance)
  • Instant Cash Loans Ltd. (owned by Aurajoki Holdings)
  • Gain Credit (Lending Stream)
  • Madison CF UK Ltd (118 118 Money)
  • MYJAR Limited
  • PDL Finance
  • SRC Transatlantic
  • Wonga (WDFC UK Ltd)
  • Cash on Go Limited
  • DJS (UK) Limited
  • Emergency Cash Limited
  • Loans2Go Ltd
  • Oakam Ltd
  • Provident Personal Credit (Satsuma)
  • Uncle Buck Finance LLP
  • Other high cost loan lenders (non-HCSTC)
  • Overview
  • Returning to profitability
  • Ongoing demand for high-cost loans
  • Future regulatory changes
  • Conclusions
  • Market forecast
  • Risks to the forecast
  • List of abbreviations
List of charts and tables
1. Types of HCSTC products
2. Cost of possible credit options for sub-prime/near-prime consumers
3. HCSTC top firms revenue/£m
4. Total HCSTC lending market size/£m
5. Change in total revenue of the set of leading lenders from previous year/%
6. the author HCSTC lending financial model
7. HCSTC lending market size by new business/£bn
8. HCSTC monthly new business (January 2013=100)
9. Historical number of unemployed and underemployed/m
10. UK median earnings (current prices) and real household disposable income annual growth rates/% annual change
11. Key FCA regulatory requirements relevant to HCSTC
12. Typical representative charges for leading HCSTC providers by size of loan and duration
13. Per-agreement contribution towards fixed costs by size of loan and duration
14. Per-agreement contribution per week towards fixed costs by size of loan and duration
15. Average size of HCSTC loans £ nominal
16. Average period of HCSTC loans (days)
17. Summary of profitability of different types of loans
18. Enova: Percentage of revenues by type of lending product, 2009-17/%
19. Leading lenders by revenue/£m
20. Combined Pre-tax profit margins of leading HCSTC lenders
21. Leading lenders net profit margins before tax 2015/2016
22. TrustPilot ratings of HCSTC providers (scores out of 10)
23. Complaints handled by Financial Ombudsman Service (FOS) by firm, 6-months to December 2017
24. Webscore Page Rank scores
25. CashEuroNet UK LLC Summary Financials
26. Elevate Credit International Ltd summary financials
27. Instant Cash Loans Ltd. including MEM Consumer Finance and Express Finance (Bromley)
28. Gain Credit LLC (formerly Lending Stream LLC) Summary Financials
29. Madison CF UK Ltd Summary Financials
30. SRC Transatlantic Ltd: summary financials
31. WDFC UK Ltd. summary financials
32. Per-agreement profitability – 2015/16 (by size of loan and duration)
33. Forecast market revenue/£m 64

Companies Mentioned (Partial List)

A selection of companies mentioned in this report includes, but is not limited to:

  • Cash on Go Limited
  • CashEuroNet UK LLC
  • DJS (UK) Limited
  • Elevate Credit International Ltd
  • Emergency Cash Limited
  • Gain Credit (Lending Stream)
  • Instant Cash Loans Ltd.
  • Loans2Go Ltd
  • Madison CF UK Ltd (118 118 Money)
  • MYJAR Limited
  • Oakam Ltd
  • PDL Finance
  • Provident Personal Credit (Satsuma)
  • SRC Transatlantic
  • Uncle Buck Finance LLP
  • Wonga (WDFC UK Ltd)