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Point of Sale Finance: UK Market Profile and Forecast 2015

  • December 2015
  • -
  • Apex Insight
  • -
  • 42 pages

What does this report contain?


This report focuses on the UK market for point of sale, or POS, finance.
Also known as retail finance, in-store credit or store instalment credit, it refers to loans provided by, or on behalf of, a retailer to enable a consumer to make a specific purchase.
The report quantifies the market size, historical growth rates and levels of industry profitability. It also includes an in-depth analysis of the relevant drivers of industry growth setting out historical trends and available forecasts. Our forecast for industry growth is based on this analysis of historical trends and growth drivers.

What are the objectives of this report?

This report aims to answer a series of questions on the POS finance market:
How does the market work? What changes have there been recently
Which types of retailers use it most frequently?
How does it compare with alternative and substitute forms of finance
What role has new technology played in the market?
What is the market size and historical growth rate? What future growth can be forecast? What are the risks to future market growth?
What hard evidence is there to support views of historical and forecast POS finance market growth? What are the POS finance market drivers and how have they trended?
How does the market compare with those in other countries?
Who are the main finance providers and principals, which are most widely used by retailers, how have they performed?
In simple terms, what do they each do, who do they work for and how do they operate?

The report is intended for:

Operators of rent-to-own retail businesses themselves
Investors in these businesses
Retail property-owners, developers and landlords
Market regulators and policymakers
Banks, analysts, consultants and other parties with interests in the sector

What are the sources and methodology?

Interviews with senior-level contacts in the consumer credit industry
A survey of the top 1,025 UK retailers to establish whether they were using this form of finance and which providers they used
Extensive research into published industry sources
In-depth analysis of the macroeconomic environment and relevant market drivers
Financial analysis of the accounts of companies in the industry
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions
Market forecasts have been constructed using simple assumptions which are clearly stated. Supporting evidence is provided for our assumptions but readers can easily flex them to model alternative scenarios.

Market Background

Point of sale (POS) finance – also called retail finance, in-store credit or store instalment credit – refers to loans provided by, or on behalf of, a retailer to enable a consumer to make a specific purchase.
Some retailers choose to subsidise the cost of the credit as a promotional expenditure (ie interest free credit)
It is used by both national retail chains and independent shops, most commonly in the furniture, jewellery and electricals sectors.
Loans are generally set up as personal loans, not secured on the asset and without a lease arrangement.
Loan periods are generally from 6-60 months with an APR of 10-20% being typical.

Market Growth and Drivers

The market for POS finance has grown quickly in recent years as penetration of this form of finance has increased.
It has been driven by trends in a range of demand and supply factors, including:
The appetite of consumer for purchasing the kinds of items which tend to be financed in this way, which is likely to be related to the overall level retail sales but with more of an emphasis on discretionary purchases (big ticket leisure items) and furniture
Consumer confidence in driving larger, discretionary purchases
The overall performance of the economy as a driver of both retail sales and consumer confidence
The level of housing transactions, which tends to drive furniture purchases
The availability of this form of credit, influenced to an extent by overall unsecured consumer borrowing levels
Pricing of POS finance loans
The impact of technology on the market with new apps enabling far quicker decision-making
The impact of regulations on the market.

Competitive Landscape

The market consists of finance providers and those which act as a principal or broker. Those most widely used by the leading 1,000 UK retailers are Finance providers Hitachi Capital, Barclays Partner Finance and Ikano Bank
Principals, V12 and Pay4Less
A significant proportion of retailers provide the finance themselves (eg Next, Home Retail Group)
Most operators have grown in recent years and all are profitable. Average pre-tax margins across the sector are around 12%


Outlook

The prospects for the market depend to a large extent on how the market drivers perform.
The outlook for economic growth, and hence consumer appetite for borrowing and retail spending, is positive
There appears to be potential for penetration to continue to rise in the future with many retailers in key segments not yet offering POS finance
Rising interest rates should lead to industry revenues growing at a faster rate than loan books
There is no immediate prospect of tighter regulation although we believe there are risks which mean this cannot be ruled out.
As well as regulation, key risks to market growth include UK macroeconomic performance, the development of new potential substitutes given UK fintech innovation and potential for further delay in interest rate rises.

Table Of Contents

Point of Sale Finance: UK Market Profile and Forecast 2015
About this report 2
What does the report contain? 2
What are the objectives of this report? 2
What are the sources and methodology? 2
Summary 3
Market background 3
Market growth and drivers 3
Competitive landscape 3
Outlook 3
About Apex Insight 4
Company background 4
Consulting services 4
Related research 4
Research subscriptions 4
Contents 5
List of charts and tables 8
About the Market 10
POS finance is particularly widespread in furniture, jewellery and electrical/electronics retailing 10
POS finance market characteristics include high acceptance rates and increasing usage of technology 10
Adjacent markets include store cards and credit accounts 13
Store cards and credit accounts 13
Credit cards 13
Personal loans 13
Car finance 13
Market size and growth 14
Historical market size and growth 14
Market drivers include consumer preferences as well as a range of indicators 15
Retail sales have increased each year since 2009 15
Consumer confidence has reached 10-year high levels 16
GDP growth has resumed following the patchy recovery 16
Housing transactions have remained at low levels following the 2009 crash 17
Credit card penetration levels are slowly falling 17
Overall levels of consumer borrowing are once more increasing 18
Interbank rates have remained low since 2009 18
Regulation of the sector has now passed to the FCA 19
We identify the relationship between retail sales, loan books and market revenues 19
Comparison with the US market suggests significant potential for further growth 20
Decreasing bad debt rates 20
Competitive landscape 22
Our survey showed which brokers / lenders were most widely used by UK retailers 22
Review of the financial performance of the leading operators 23
Others 23
Lender profiles 25
ARG Personal Loans Ltd 25
Description 25
History 25
Financials 25
Key Clients 25
Azule Ltd (t/a Azule Finance) 26
Description: 26
History: 26
Financials: 26
Key Clients: 26
Clydesdale Financial Services Ltd (t/a Barclays Partner Finance) 27
Description 27
History: 27
Types of Funding Structures: 27
Financials: 27
Key Clients: 27
Close Brothers Retail Finance Ltd 28
Description 28
History: 28
Financials 28
Key clients: 28
Creation Consumer Finance Ltd 29
Description 29
History: 29
Financials: 29
Key clients 29
Hitachi Capital Consumer Finance 30
Description 30
History 30
Products 30
Financials 30
Key clients: 30
IKANO Bank AB 32
Description 32
History 32
Financials 32
Key clients 32
Recent news 32
OMNI Capital Retail Finance Ltd 33
Description 33
History 33
Financials 33
Key clients 33
Pay4Later 34
Description 34
History 34
Product 34
Financials 34
Key clients 34
Recent News 34
Rentsmart Ltd (t/a ThinkSmart) 35
Description 35
History 35
Products 35
Finance 35
Key Clients 35
Recent News 35
Secure Trust Bank Plc 36
Description 36
History 36
Products 36
Finance 36
Key clients 37
Key partners 37
V12 Retail Finance Ltd 38
Description 38
History 38
Finance 38
Key clients 38
Forecasts 39
Key drivers suggest a more optimistic market outlook 39
Our market forecast scenario suggests further growth based on a series of assumptions 41
There are several potential areas of risk associated with the forecast 42
List of abbreviations 43

List of charts and tables

Usage of POS finance by leading UK retailers / number of retailers per sector (LHS) vs penetration by sector (RHS) 10
Interest rate comparison: POS finance vs mail order and credit card / personal loans 11
Historical UK POS finance market size / £m 14
Lending to relevant segments by FLA members 14
Retail sales and household disposable income / annual % change 15
UK consumer confidence 16
UK real GDP / % annual changes 16
UK housing transactions volume (‘000) and average value (£'000) 17
Number of credit cards in issue, spending on credit cards / m, £bn 17
UK outstanding unsecured consumer credit / £bn 18
Interbank interest rates 18
Loan book size of leading POS loan funding providers / £'000 19
Combined loan book value as a percentage of retail sales 20
Combined revenues as % of combined loan book value: top lenders 2009-14 20
Bad debt ratio as % of loan book 21
Usage of POS finance companies by retailers / mentions 22
Leading lender / broker POS finance revenue / £m 23
Revenue growth of top UK POS finance providers / brokers, CAGR 2009-14 23
2014 pre-tax profit margins of leading POS finance companies / % 24
ARG Personal Loans Ltd summary financials 25
Azule Ltd summary financials 26
Clydesdale Financial Services Ltd summary financials 27
Close Brothers Retail Finance Ltd summary financials 28
Creation Consumer Finance Ltd summary financials 29
Hitachi Capital (UK) Plc summary financials 30
IKANO Bank AB summary financials 32
OMNI Capital Retail Finance Ltd summary financials 33
ARG Personal Loans Ltd summary financials 35
Secure Trust Bank Plc summary financials 36
V12 Retail Finance Ltd summary financials 38
UK real GDP / annual changes 39
Retail sales and household disposable income / annual % changes 39
Unsecured consumer credit / £bn 40
Combined loan books of leading POS finance lenders as a percentage of retail sales 40
POS finance revenue as a % of loan book 41
POS finance - forecast market size / £m 41

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