High

Consumer Finance

Lenders are under increased financial stress, as margins are reduced and the risk of bad debts increase.

Sector trends & challenges

  • Bad debt provisions

    As the economy slowly recovers from the COVID-19 pandemic, there is a growing risk of non-repayment from consumers, resulting in bad debts being recognised.

  • Increased regulation

    New regulations aimed at treating consumers fairly may result in increased costs and operational challenges, such as increased credit checking.

  • Innovation

    The sector has been highly innovative, with the development of digital ‘Buy Now, Pay Later’ finance providers a clear example. Continued investment in new platforms and services will be important for the larger players.

Sector rating profile

The sector has been under significant stress in recent years, firstly following a wave of mis-selling complaints and a tightening of regulation that increased operating costs. The innovation shown by new digital entrants to the market, partnering directly with retailers to provide simple finance products, and more recently steps announced by the FCA to increase regulation of the “Buy Now, Pay Later”, shows how the sector continues to evolve.

Consumer Finance

The impact of COVID-19 is likely to be felt across the consumer finance sector throughout 2021, where a fall in demand for discretionary purchases and increasing levels of bad debt will impact on both top and bottom line.

Lenders remained focused on liquidity and minimising risk of future mis-selling claims in a post-COVID landscape.

The likelihood of increased regulation over the coming months and years has the potential both to increase operating costs for finance providers, as well as make the services they provide more cumbersome for consumers to use (such as increased credit checking). Adapting to a new regulatory landscape and continuing to provide simple, good-value products will remain a priority for responsible lenders.

Find Your Expert

Ed Boyle is Interpath Co-Lead for the Financial Services sector, which includes Consumer Finance as one of four core segments. Ed also leads our approach to Consumer Finance nationally for Interpath alongside Alex Watkins.

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