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

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 Although many firms have withdrawn there are still at least 30 active High-Cost Short-Term Credit market participants and even some new entrants.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?