WHAT LIES AHEAD?
LOOKING TO THE FUTURE OF CONSUMER LENDING

CCTA

Autumn is a time for discussion, and this year the impact of Covid-19 is on the agenda. One of the traditions of Autumn in the trade association world is that it is time to hold business events. We had our own Autumn Summit, while others are running workshops, conferences and roundtables. Many have returned to physical events, others remain virtual.

Having spent the best part of two years living in extraordinary circumstances, there is an understandable wish to comprehend the impact of the Covid-19 pandemic and predict what it might mean for future lending.

In some areas the impact is more obvious, with a tale of growth. No one can deny that the growth of online shopping is one of the reasons why we have seen an explosion in unregulated Buy-Now Pay-Later (BNPL). The seeds were sown before the pandemic, but they have been very effective in making themselves part of the customer journey.

So much so, that the Financial Conduct Authority was unable to ignore the expansion of this credit-like product just outside its perimeter. In a review of consumer credit (the Woolard Review) with so many problems and issues to consider, it was the regulation of this sector that dominated.

Now the question for BNPL is what that regulation will look like and the impact it might have on the sector. What is clear is that this model will be around for the future.

Over in car finance, there are so many questions about whether behavioural change will impact on the lending market. Has the pandemic changed driver habits? Will it alter levels of demand or see demand for certain vehicle types?

I was recently invited to give our views about the future at the Car Finance Conference run by Credit Strategy. I was happy to talk about what our members have told us about motor finance. The drop in demand was matched with a drop in supply as many dealerships pulled back from the market. Pent-up demand has led to some spikes in sales, especially around used cars. The impact of supply chain problems on the availability of new cars is also a big issue. But my message was that looking forward is complex.

The daily commute is such a big part of car use, and yet the newspaper headlines would tell you very different stories about its future. The death of the office; the return to the office; the drop in inner-city prices as people flee city; the bounce back of city prices as people want to return.

That is before we think of all the other dynamics in play. There are so many elephants in the room, including the challenge to make the switch to electric and other greener energies. There is clearly political pressure, backed by a vocal public lobby.

The risk is that we take our recent experiences, some of them short-term, and attempt to extrapolate without having enough data points.

Elsewhere there are a mix of issues and similar questions about future direction. Over the summer we have talked to regulators, politicians and a range of other stakeholders about some of the significant developments in alternative lending.

The exit of Provident from home-collected credit and the questions over Amigo have given weight to our concerns about future access to credit. One of the questions we have been asked by Government and political contacts is to better understand the impact of the pandemic on the supply and demand.

We can tell a story of the cliff-edge drop in lending across so many of the sectors that we represent. That there was a drop in supply as lenders pulled back, but also a drop in demand as families went into lockdown.

However, we are also keen to point out that there were issues in lending before Covid-19. That certain markets show a decline in credit supply even before 2020. That regulatory pressure has many asking questions about the future. Those that will miss out are the ones who are badly served by the present mainstream consumer credit market.

These discussions continue and my diary is filling up with events that allow us to take our messages out further.

One of those messages is that there is an important role for alternative credit in getting the UK back to work. The financial services that we provide to families has a significant impact on the community. Credit has always been about both dealing with today’s issues and taking the opportunities of tomorrow.