寻找正确的平衡：消费信贷的未来.pdf

1Finding the Right Balance A report on the future of consumer credit lending Research by Duologi2ForewordGary LittleJohn TaylorCo-CEOs of DuologiIn todays business landscape,the question of consumer spending power is of particular importance.From retail stores to education providers and travel companies,competition is fierce,and even longstanding household names are feeling the pressure to keep pace.Recent store closures across the UK high street are just one such example of this.Its therefore more vital than ever that brands set their business apart from competitors and keep up with todays savvy consumers.Innovative technology tools are helping to achieve this;streamlining processes that allow merchants to provide the best possible experience for their customers.The intent of this report is to comprehensively explore the consumer credit market,and help merchants of all types to understand the opportunities that exist to boost sales by creating a point-of-difference amongst their customer base and beyond.Foreword23Backed by global investment firm,Oaktree Capital,Duologi offers merchants the chance to increase their sales,boost customer satisfaction and grow profitability through the delivery of tailored point-of-sale finance options.Unlike many other similar businesses currently in the market,Duologi does not offer a one size fits all model;aiming instead to work with each partner on an individual basis to ensure a bespoke service is created for each.The platform is powered by ground-breaking technology,built from scratch in London,allowing retailers to quickly and simply start offering finance to their customers.Duologi is led by co-CEOs,John Taylor and Gary Little,who between them count more than 50 years consumer lending experience at institutions such as Barclays and Close Brothers.Since launching in September 2017 as a two-man start-up,the business has already secured 100m in annual rolling commitments,with ambitions to have a seven-figure lending book within five years.About Duologi34IntroductionThe UK consumer credit market has been buoyant in recent years,seeing a period of sustained growth and reaching a peak of over 1.8 billion at the time of writing.Point-of-sale(POS)finance or credit is already helping millions of households purchase items and access services that may otherwise have been unavailable to them.Whats more,offering this type of credit holds significant benefits for merchants;increasing sales and conversion rates,growing basket size and boosting brand loyalty.Whilst a number of high street and online brands do already offer in-store credit to cover big-ticket items,such as furniture and household goods,the benefits of POS finance should not just be limited to retailers.Payment plans for products and services in all consumer-facing sectors from education to travel and healthcare are a desirable option for customers,and can help businesses to easily differentiate themselves from the competition.But what is POS finance,and where does it sit against a backdrop of plummeting trust in traditional banking institutions and amongst todays digitally-savvy,always on consumer?In this report,we will examine the current state of the credit market and shine a light on the most common issues that consumers face when trying to access funds.We will look at their attitudes towards traditional banks and what they think of the current solutions already out there.We will investigate consumer attitudes towards POS finance;what they are calling out for,what they would be willing to spend and what it could mean for UK merchants both in terms of profitability and brand perception looking specifically at how merchants stand to benefit from offering a range of flexible credit options.Lastly,we will provide advice on how best to implement consumer credit within a business,with some examples of merchants that are already reaping the rewards.45When it comes to credit,consumers feel that current offerings are falling shortWhen applying for credit,consumer frustrations are high and this is leading to basket abandonmentPOS finance options have low awareness levelsThe vast majority of consumers would consider using POS finance in futurePOS finance options can be a key point of difference for merchants,and one which helps them convert sales of people have experienced high APR rates of consumers think the credit application process is too slow think the decision took too long to make experienced hidden charges of people experienced confusing jargon which made the process difficultof people wouldnt think to ask the retailer if they offered POS financepeople said they would consider purchasing a product or service in this wayAlmost a third(27%)of people have never used credit to buy anythingThe average amount that these people would be looking to borrow is 620This means that a lack of finance options is costing the UK over 25bn in lost revenues 20%of people would not trust in a loan from a bank 56%24%20%28%26%94%78%27%62025bnExecutive Summary56There is a huge opportunity for merchants that offer a range of finance solutions0%finance is the biggest selling point for consumers when buying on creditof people said this is an important consideration if they were to buy on credit.This goes up to 81%of people who earn more than 40kof people said a quick and easy process would be top of their desirables 75%40%More customersFlexibility/multichannel spending is vitalReassuring those who might have been turned down previouslyIncreasing brand loyalty A key factor in deciding where to shopAttracting the impulse spend34%of people said they would be more likely to spend with an organisation that offers POS finance options46%of people think POS finance should be available both online and instore13%of people doubt they will be accepted for a loan28%of people said they would be more likely to return to a brand that offered POS finance options20%of people said that if a company didnt offer finance,they would be more likely to shop elsewhere26%of people would be more likely to spend more than originally planned if they found out they could access a good amount of credit from an organisation/retailer6A poor credit offering means that merchants could lose up to 40%of their salesA range of industries stand to benefit from offering POS finance options42%of consumers think the retail industry could do more to offer POS finance options24%think the health industry could32%think the education sector could32%think the travel industry could32%think the property industry could7Section oneThe current market8Consumers are more willing and able to borrow funds than ever before,with credit card spending the most popular option-followed closely by other loans and as such,are demanding increasingly competitive credit options from lenders.Credit offers convenience;effectively letting consumers buy now and save up later for items or services that they may otherwise not have had access to.This may mean getting hold of a vital piece of kitchen equipment,being able to afford to run a car,the luxury of an annual holiday or the chance to undergo expensive medical treatments.However,this growth in unsecured lending loans that are backed only by the borrowers creditworthiness,rather than by any concrete assets-has led to warnings from the Bank of England of an“unsustainable”market,with issues around household debt grabbing headlines as people struggle to keep up with their repayments.Concerned by this,banks the traditional stalwarts of the lending market have started cutting back on unsecured lending;becoming wary of the amount of credit that consumers are borrowing and tightening their lending criteria as a result.Consumers have consequently had to find different ways to access the finance they need.In some cases,this has taken the form of payday loans,doorstep loans or rent-to-buy schemes.These schemes have given the credit market a bad reputation;sometimes charging APR rates upwards of 1,400%and plunging many vulnerable households into even deeper financial turmoil.The Financial Conduct Authority(FCA)has recently stepped in to more heavily regulate such practices but a gap in the market still remains for those customers who cannot borrow from banks but still need to access the products they cannot afford upfront.At the same time,consumer trust in banks is dipping.The banking crisis of 2008 caused by widespread unsecured,sub-prime lending,which threw the global economy into complete disarray led many people to question their bank for the first time,and whether it was actually providing them with a fully transparent offering.89The notion that traditional financial institutions do not work in the interest of their customers,but purely in their own,has continued to proliferate and this is reflected in the fact that one in five(20%)of people would no longer trust in a loan from a bank.Such scepticism is especially prevalent amongst the millennial generation with the figure rising to 24%amongst 25-34 year olds.The issue has been highlighted by TSBs recent handling of an IT meltdown that affected millions of customer accounts.Senior MPs and the financial watchdog criticised the bank for its failure to be“open and transparent”in its communications,leading to even further mistrust in the sector as a whole.Simultaneously,advances in technology have driven digital transformation in the banking sector.Following the lead of disruptive service providers,such as Uber and AirBnB which allow consumers to manage aspects of daily activity through their smartphone an array of digitally-focused challenger brands have begun to take market share in the financial services sector.Based solely on technology and free of the deep-rooted shackles of the old guard,these start-ups are seen by many as a more open and agile way of doing business.The consumer credit market is therefore seeing a step change.A situation has arisen in which banks are increasingly cautious about how much they lend,and to whom,whilst many consumers dont even trust banks to provide them with funds,but still want to access goods through regular repayment plans,rather than upfront costs.910POS finance also called retail finance or store credit allows merchants to offer their customers a loan,backed by a financial lender,to purchase a product or service.The loan is then repaid in fixed monthly installments to the merchant.Its a relatively new option for consumers,but the market has seen rapid growth in recent years,currently worth 5 billion in the UK with huge opportunities for merchants to grow their business.For many years,POS finance has been backed by major banks and financial lenders However,as these institutions are increasingly unwilling to provide the flexibility or transparency demanded by todays digitally-savvy consumer,a range of new providers are stepping in to take their place.24%of 25-34 year olds would not trust in a loan from a bank 1011Section twoCurrent credit offerings are they up to scratch?12Borrowing on credit is often purported as a simple way to access funds,but many lenders are still getting the process wrong,leading to consumer frustration and revenue loss as a result.Over half(56%)of people have experienced high interest(APR)rates when applying for credit,whilst 28%of consumers have not been provided with full transparency when it comes to their loan;experiencing hidden or unexpected charges during application or at repayment stage.Many lenders are also falling short in terms of user experience,as 24%people believe that their credit application process was too slow.One in five(20%)also stated that the lending decision took too long and a further 26%were unable to decipher their application as it was full of confusing financial jargon.Over half(56%)of people have experienced high interest(APR)rates when applying for credit121356%of people have experienced high APR rates56%24%of consumers think the credit application process is too slow24%20%think the decision took too long to make20%28%experienced hidden charges28%Crucially,these consumer frustrations are causing a high degree of shopping cart abandonment.If encountering any of the issues highlighted above,a huge 40%of people would abandon their purchase.This increases to 49%amongst the 25-34 millennial age bracket,which now comprises more than a quarter of the UKs population,bringing with it considerable spending power.For businesses,whose sale of products and services rests on the ability of consumers to access their desired cash,this is a huge problem.The retail industry in particular has seen its fair share of turmoil in recent months,with store closures and falling profits hitting the headlines on a near-daily basis.In these challenging times,its more important than ever that merchants find ways to offer flexible,transparent and easily-accessible funds to customers.26%of people experienced confusing jargon which made the application process difficult26%1314What are people buying on credit?Consumers are using credit to purchase and access a huge range of products but with a clear inclination towards certain sectors.Almost a third(30%)of people have used credit of some kind to buy a holiday,with the same amount of consumers funding items of furniture in this way.One in four(25%)have used credit whether a credit card,loan or finance-to complete a home renovation project.Perhaps surprisingly given the big-ticket nature of the sector just 9%have bought a piece of jewellery using borrowed funds.Only 4%of people have used credit to fund a health procedure.More than a quarter(27%)of people have never used credit to purchase anything,suggesting there is a huge opportunity for merchants to grow their sales if they offer the right type of credit products.30%of people have used credit for a holiday30%30%of people have used credit for furniture30%20%of people have used credit for home renovations20%9%of people have used credit for vet treatments9%7%of people have used credit for training and education7%4%of people have used credit for healthcare4%6%of people have used credit for beauty treatments6%27%of people have never used credit to buy anything27%9%of people have used credit for jewellery9%1415However,although 28%of people state that they would happily make a purchase on credit card or via a bank loan,only 6%of people would ask a merchant if they offered finance options.That means nine in 10 people wouldnt even ask the question.More than one in 10(13%)of people said they didnt think they would be accepted for credit,and a further 14%didnt realise they could apply for POS finance for products or services online-not just in store.Evidently,despite a general willingness to spend on credit,consumer awareness levels are very low with regards to the availability of finance.Not only does this suggest that merchants of all kinds can benefit from offering finance options,but also that they should work hard to promote them as a key point of difference.If they couldn