INSIGHTS ¦ A new way to view the UK consumer credit market

Oplo Whitepaper


This document outlines the profound shifts within the UK consumer credit market, identifying an emergent category called “The New Mainstream.” This category encapsulates a significant portion of British consumers who no longer fit traditional prime or near-prime classifications due to evolving credit behaviours and economic conditions. The report, prepared by Oplo in July 2021, challenges outdated segmentation models and calls for a more dynamic approach to consumer credit, advocating for a focus on consumer potential rather than past credit problems.

Key Points

  1. Emergence of ‘The New Mainstream’: This new category represents consumers who straddle traditional prime and near-prime segments.
  2. Shift in Consumer Behaviour: Rapid changes in consumer behaviours and credit access are influencing market dynamics.
  3. Outdated Segmentation Models: Traditional customer profiling in the credit industry fails to accommodate the fluid nature of consumer financial situations.
  4. Influence of Technological Innovations: The advent of fintech innovations like ‘buy-now, pay-later’ schemes and digital banking are reshaping consumer expectations and experiences.
  5. Economic Impact of COVID-19: The pandemic has significantly altered consumer financial profiles, pushing more individuals towards near-prime status.
  6. Regulatory Changes: Tighter regulations are affecting the credit availability, particularly impacting prime consumers who are facing stricter credit assessments.
  7. High-Cost Credit Markets: There’s a notable shift away from high-cost credit options due to regulatory scrutiny and consumer preference for more favourable financial products.
  8. Financial Exclusion: Significant numbers of consumers are either unbanked or underbanked, highlighting a gap in the current financial system.
  9. Digital Adoption Among Younger Consumers: Younger demographics show a higher inclination towards digital-only lenders, influenced by the poor digital capabilities of traditional banks.
  10. Role of Open Banking: Open Banking is poised to play a crucial role in integrating financially excluded segments into the mainstream.
  11. Increasing Financial Instability: Many consumers are experiencing greater financial instability, which is not fully captured by traditional credit scoring.
  12. Demand for Responsible Lending: There is a growing consumer demand for responsible lending practices that consider the broader financial health of individuals.
See also  [INSIGHTS] : FCA Consumer Duty Summary

Key Statistics

  • 81% of UK adults used some form of regulated consumer credit in 2020.
  • 26 million UK consumers potentially fall within the ‘new mainstream’ category, significantly more than previously classified near-prime consumers.
  • Impact of COVID-19: 11 million people borrowed for everyday expenses since the pandemic began, with 2.8 million using high-cost credit.
  • Digital Trends: Over double the usage of digital credit services among younger consumers compared to the rest of the population.
  • Financial Exclusion: Approximately 1 million UK residents are unbanked.

Key Takeaways

  • The UK consumer credit market is undergoing significant transformations, necessitating a reassessment of customer segmentation and credit scoring.
  • ‘The New Mainstream’ represents a critical and growing segment that defies traditional classification into prime and near-prime categories.
  • Economic and regulatory changes, intensified by the COVID-19 pandemic, are driving shifts in consumer credit usage and preferences.
  • Technological advancements, particularly in digital banking and Open Banking, are critical to addressing the needs of a changing consumer base.
  • Financial institutions need to adopt more inclusive and dynamic lending practices to cater to the evolving financial landscapes of consumers.
  • The role of trust and responsibility in lending is becoming increasingly important, with consumers favouring institutions that prioritize ethical practices.
  • Traditional banks may need to revise their strategies to avoid losing relevance in an increasingly digital and segmented market.
  • Understanding and integrating financially excluded groups into the mainstream can significantly expand market opportunities for lenders.
  • Regulatory pressures and consumer advocacy are prompting a shift towards more sustainable and consumer-friendly credit options.
  • The impact of economic shocks, such as the COVID-19 pandemic, calls for a more resilient and adaptable credit system.
  • Younger consumers are leading the charge towards digital lending solutions, indicating a shift in future banking trends.
  • The industry must pivot from a profit-centric approach to one that genuinely aids in the financial betterment of consumers.

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