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MAPS CONSUMER DEBT & CREDIT : NOVEMBER 2002
Overview

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This report covers: financial supermarkets, finance brokers, unsecured loans, finance houses, banks, branches, credit cards, charge cards, debit cards, store cards, loan sharks, debt helpline, household debt, extortion, exemptions, early settlement, overindebtedness,

Companies covered include: American Express, Diners club, Switch, Visa, Abbey National, Barclays, HBOS, Lloyds TSB Group, Royal Bank of Scotland,

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TABLE OF CONTENTS

1. Introduction 10
BACKGROUND 10
Definition 10
Personal Loans 10
Charge Cards 10
Credit Cards 11
Store Cards 11
2. Strategic Overview 12
Unemployment and earnings 12
Unemployment 12
Table 1: UK Claimant Unemployment and Average Earnings Growth Rate ( percent), 1997-2001 12
Prices, Interest Rates and Savings 12
Table 2: Consumer Expenditure and Retail Price Index (index 1995=100), 1997-2001 13
Table 3: Interest Rates, Saving Ratios, Equity Prices, Net Financial Assets and House Prices ( percent and index 1995=100), 1997-2001 14
Personal Sector Financial Assets 14
Table 4: UK Personal Sector Gross Financial Wealth (£bn and ratio), 1997-2002 15
Table 5: UK Personal Sector Financial Liabilities: Mortgage Lending (£bn), 1997-2002 15
Table 6: UK Consumer Credit (£bn), 1997-2002 16
Table 7: UK Personal Sector: Total Financial Liabilities (£bn and ratio), 1997-2002 17
Credit rating 17
How Credit Rating Works 17
Implications of Credit Rating 18
Market Dynamics and Segmentation 18
Net Lending 18
Table 8: Net Lending for Consumer Credit (£m), 1998-2002 19
Table 9: Credit-Card Lending (£m and index 1998=100), 1998-2002 20
Market Sectors 20
Distribution 21
Competitive structure 21
regulations 21
Consumer Credit Act 21
Protection Under the Act 22
Cancelling a Credit Agreement 23
Default Notice 23
Court Orders 23
Unfair Agreements 23
Suing the Seller or Credit Provider 24
Written Information 24
Task Force on Overindebtedenss 25
European Directive on Consumer Credit 25
Self-regulation 26
Finance Industry Standards Association 26
advertising 27
Table 10: Main Media Advertising Expenditure on Credit and Debit Products (£000), Year Ending June 2002 27
Figure 1: Main Media Advertising Expenditure on Credit and Debit Products (£000), Year Ending June 2002 28
The Consumer 28
Market forecasts 29
Consumer Confidence 30
3. Banks 31
background 31
Table 11: Banks' Share of Annual Net Lending to Consumers ( percent and index 1998=100), 1998-2002 31
market size 32
MARKET LEADERS 32
Table 12: Top Nine Banks by Loans and Advances to Customers (£m), 2001 32
MARKETING ACTIVITY 32
DISTRIBUTION 33
Branches 33
Table 13: The Branch Networks of the MBBG in Great Britain, 1998-2002 33
ATMs 34
Table 14: Cash Dispensers and ATMs of the MBBG in Great Britain (number and index 1998=100), 1998-2002 35
4. Building Societies and Credit Unions 36
BUILDING SOCIETIES 36
Market Size 36
Market Leaders 36
Table 15: Top Five Building Societies in the UK by Assets (£m), 2001 36
Figure 2: Top Five Building Societies in the UK by Assets (£m), 2001 37
Distribution 37
Table 16: The UK Building Society Branch Network (number and index 1998=100), 1998-2002 38
Credit Unions 38
5. Finance Houses 40
MARKET SIZE 40
secured loans 40
Background 40
Market Shares 41
Table 17: Consumer Finance Provided by FLA Members (£m and index 1998=100), 1998-2001 41
Consumer Trends 42
Advertising 42
Table 18: Main Media Advertising Expenditure on Secured Personal Loans (£000), Year Ending June 2002 43
Distribution 43
Subsidiaries of Financial Institutions 43
Financial Supermarkets 44
Finance Brokers 44
Unsecured loans 44
Background 44
Market Shares 44
Consumer Trends 45
Advertising 45
Table 19: Main Media Advertising Expenditure on Unsecured Personal Loans (£000), Year Ending June 2002 46
Distribution 46
6. Credit Cards 48
BACKGROUND 48
MARKET SIZE 48
Market LEADERS 48
Table 20: Number of Credit Cards in Issue (million), 2002 49
consumer trends 49
Customisation 49
Overseas: Cheap Euros? 49
Table 21: Standard Credit Cards Offering Lowest International Charges ( percent), 2002 50
advertising 50
Table 22: Main Media Advertising Expenditure on Credit Cards (£000), Year Ending June 2002 51
distribution 52
7. Charge Cards 53
MARKET SIZE 53
American Express 53
Diners Club 54
Market VOLUME 54
Table 23: American Express and Diners Club Charge Cards in Issue in the UK (000), 1998-2002 55
consumer trends 55
marketing activity 55
distribution 55
American Express 55
Diners Club 56
8. Debit Cards 57
MARKET SIZE 57
Market VOLUME 57
Table 24: Number of Debit Cards in Issue in the UK (000 and percent), 1998-2002 57
Figure 3: Number of Debit Cards in Issue in the UK (000), 1998-2002 58
MARKETING ACTIVITY 58
Table 25: Main Media Advertising Expenditure on Debit Cards (£000), Year Ending June 2002 58
distribution 59
Switch 59
Visa 59
9. Store Cards 60
market size 60
Table 26: Number of Store Card Transactions in the UK by Volume (million and index 1998=100), 1998-2002 60
market share 60
Table 27: Leading Retail Card Issuers by Market Share by Volume ( percent of cards issued), 2002 61
Figure 4: Leading Retail Card Issuers by Market Share by Volume ( percent of cards issued), 2002 61
ADVERTISING 62
DISTRIBUTION 62
10. Debt 63
BACKGROUND 63
Debt helpline 63
Loan sharks 63
Government as nurse? 64
Debt consolidators 64
11. An International Perspective 65
Household debt 65
Table 28: Household Sector Debt in the UK, Japan, Germany and the US ( percent of disposable income), 2000 65
European directive on consumer credit 65
Main Elements of the Proposal for a New Consumer Credit Directive 67
Harmonised Rules 67
Enlargement of the Scope to Cover Present-Day Realities 67
Improved Transparency and Comparability of Credit Offers 67
Consumer Disclosure and Lender Respect 67
Improved Freedom of Circulation of Quality Solvency Data Across Borders 68
Rights of Withdrawal 68
Registration of Lenders and Credit Intermediaries 68
Liability of Lenders 68
Protection of Personal Guarantors 68
Overindebtedness 68
Critique of the previous EC Directive on harmonisation of consumer credit regulations 69
US consumer credit 70
The Far East 70
12. PEST Analysis 71
Political FACTORS 71
economic FACTORS 71
social FACTORS 72
technological FACTORS 73
13. Consumer Dynamics 74
OVERVIEW 74
Table 29: Summary of Findings ( percent of respondents), 2002 75
ANALYSIS OF RESULTS 75
"It is Far Too Easy to Get Credit Nowadays" 75
"I Usually Save up Before Buying Something Important" 76
Table 30: Too Easy to Get Credit Nowadays and Saving Before Buying Something Important ( percent of respondents), 2002 77
"I Don't Think About Money When I'm Buying Something That I Want" 79
"Lenders Don't Really Tell You What You Could be Letting Yourself into When You Borrow Money" 79
Table 31: Not Thinking About Money When Buying Something and Lack of Information from Lenders ( percent of respondents), 2002 80
"If I Needed Money Badly I Would Borrow From Friends or Family" 82
"Interest on Store Cards is Usually More Than Interest on Credit Cards" 82
Table 32: Borrowing Money From Friends or Family and Interest is Usually Higher on Store Cards than on Credit Cards ( percent of respondents), 2002 83
"If You Shop Around You Can Get a Credit Card With Low Interest Charges" 85
"Credit Card Limits Are Too Low for Me" 85
Table 33: It is Possible to Find Credit Cards with Low Charges and Credit-Card Limits Are Too Low ( percent of respondents), 2002 86
"I am Happy to Buy on Credit Over the Telephone" 88
"I am Happy to Buy on Credit Over the Internet" 88
Table 34: Happy to Buy on Credit Over the Telephone and Over the Internet ( percent of respondents), 2002 89
"Using a Cashpoint Machine as a Way to Borrow Money Would be Convenient" 91
"I Usually Clear My Credit-Card Debt Every Month" 91
Table 35: Using a Cashpoint to Borrow Money and Clearing Credit-Card Debt Each Month ( percent of respondents), 2002 92
"I Worry About the Amount of Debt I Don't Pay Off" 94
"I Buy More On Credit Than I Used To" 94
Table 36: Worry About the Amount of Debt Not Paid Off and Buying More on Credit ( percent of respondents), 2002 95
"The Government Should Limit the Interest Rates Charged on Debt" 97
"If Shops Refuse You Credit, They Should Tell You Why" 97
Table 37: The Government Should Control Interest Rates on Debt and Shops Should Give a Reason for Refusing Credit ( percent of respondents), 2002 98
14. Company Profiles 100
Abbey national PLC 100
Corporate Strategy 100
Strengths and Weaknesses 100
New Product Development 101
Brand Development 101
Innovations 101
Appointments 102
Distribution 102
Profitability 103
Future Company Developments 103
Barclays PLC 103
Corporate Strategy 103
Strengths and Weaknesses 103
New Product Development 104
Brand Development 104
Innovations 105
Appointments 105
Advertising 106
Distribution 106
Profitability 106
HBOS plc 106
Corporate Strategy 106
Strengths and Weaknesses 107
New Product Development 107
Brand Development 108
Innovations 108
Appointments 109
Advertising 109
Distribution 109
Profitability 109
lloyds TSB GROUP PLC 109
Corporate Strategy 109
Strengths and Weaknesses 110
New Product Development 110
Brand Development 110
Innovations 111
Appointments 111
Advertising 111
Distribution 111
Profitability 112
THE ROYAL BANK OF SCOTLAND GROUP PLC 112
Corporate Strategy 112
Strengths and Weaknesses 112
New Product Development 112
Brand Development 113
Advertising 113
Distribution 113
Profitability 114
15. The Future 115
Market size 115
Table 38: Net Lending for Consumer Credit (£m), 2002-2007 115
Table 39: Consumer Finance Provided by FLA Members (£m and index 2002=100), 2002-2007 116
Table 40: Credit-Card Lending (£m and index 2002=100), 2002-2007 117
new developments 117
consumer issues 117
Table 41: Average Earnings, Unemployment, Retail Price Index, Savings Ratio and House Prices ( percent, index 1995=100 and ratio), 2002-2007 118
supplier issues 119
Barriers to Entry 119
Regulations 119
Loan Sharks 119
Extortion 120
Exemptions 120
Online Services 120
Advertising 120
Early Settlement 120
Overindebtedness 120
APR 120
demographic changes 121
market dynamics 121
Political Factors 121
Economic Factors 122
Social Factors 122
Technological Factors 123
16. Further Sources 125
Trade Organisations 125
Companies 126
Publications 128
General Sources 128
Bonnier Information Sources 129
Government Sources 130
Other Sources 131

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EXECUTIVE SUMMARY

Consumer credit is supplied by a combination of banks, building societies, finance houses, insurance companies and retailers. Of these, banks dominate the market. Frequently, banks securitise their loans through finance companies, and consumer credit is then a financial instrument exploited by the financial markets.
In most cases, consumer credit is a low-risk asset, particularly when secured against property. Even unsecured credit is checked by credit scoring software before being granted, ensuring that most mainline lenders have low levels of bad debt.
Banks dominate the markets for mortgages, remortgages, personal loans and credit cards. In many cases, banks own the finance houses that offer credit to poor risks. These lenders are also specialists in specific market sectors — for example, cars — and can set interest rates and credit terms that maximise the return on credit.
The credit-card market is dominated by two consortia of banks, Visa and MasterCard, and these banks are often members of both consortia. Historically, it has been difficult to enter the credit market unless the new entrant is a Visa or MasterCard member. The UK market has been dominated by one bank's Visa card for many years, but the market became much more competitive during the 1990s as rivals offered better and cheaper versions. With falling general interest rates the main providers have lost market share and consumer credit through credit cards has become much cheaper. However, the increasing popularity of debit cards, where there is no revolving credit element in the transaction, suggests that the credit card in the UK is reaching its limit.
This has affected non-bank providers, such as retailers, which have lost share in the credit-card market. The success of generic cards, such as Cofinoga and Cetelem, taking a major share in the EU market has so far not been repeated in the UK.
Regulatory change to moderate interest rates and to ensure that the consumer is fully informed about the implications of credit is likely both at European and UK levels. Consumer credit will remain a highly profitable industry but the immediate future is uncertain.

Text © 2002 MAPS

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