The Analysis Comment


Into this brave new world


How is one smaller, professionally-regulated lender stepping up to fill a niche in the market?


Nick Zapolski Director, Buddy Loans nick.zapolski@buddyloans.com


The landscape of the UK’s credit market has undergone significant change in the last decade. With the cloud of 2008’s financial crisis still hovering over the banking sector, consumers are finding it harder than ever to access credit through the traditional means. Stricter lending guidelines have meant that


even those consumers who would previously have been deemed capable of dealing with credit, are being locked out of the market. For those who have gone through an


unexpected life event, like redundancy, reduction in work hours, divorce, or an unplanned pregnancy, this may have left a short-term blip on their credit history. In the past, this may have stopped them


accessing the best credit deals, however now it means that they are permanently seen as a risk and are left unable to get back on with their lives. A separate scenario is impacting another


part of the market – mostly younger people – who simply have no credit history. These consumers have found themselves


caught in a catch-22 situation whereby they do not have a credit history so cannot access credit, which then means they cannot build a credit history.


A brave new business model It is estimated there are about two million consumers currently being underserved by the mainstream banks, either due to poor credit history or lack of credit. And the direction of the market suggests that banks are unlikely ever to return to serve them again.


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In the current economic and political climate, it is unlikely that the UK’s credit sector will see any change in direction as we head towards the next decade


Previously, these consumers would have


been forced into a situation where they could only access credit that put pressure on them to repay it quickly, or face sky-high interest payments. Now, however, a new wave of companies


– bound by the same Financial Conduct Authority regulations as larger competitors – have emerged to offer rejected consumers access to affordable credit. This new type of business sits between the


mainstream lenders and the payday lenders as a more affordable route. The kind of consumer turning to these


companies is the young apprentice who needs £2,000 to buy tools so they can work, or the new car owner who needs transport to be able to travel for a job. Anecdotally, we know that consumers


are feeling abandoned by larger banks and traditional lenders, so are turning to smaller companies because they have to. In the current economic and political


climate, it is unlikely that the UK’s credit sector will see any change in direction as we head towards the next decade. More likely, we will see the acceleration


of its current direction, with an increase in the number of smaller companies. Ultimately, these changing tides will prove beneficial for


consumers, creating competition in one of our oldest institutions which has mostly been dominated by the biggest names. What is happening now, is creating a consumer’s market, with


businesses forced to compete for custom, rather than consumers being forced into situations they do not want to be in CCR


www.CCRMagazine.co.uk April 2017


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