Personal Lending in Australia

Introduction

The consumer credit market in Australia has been challenged by the global economic downturn, with some competitors exiting the market. The major banks have benefited from this development by capturing a higher market share. With competition set to return to the market, institutions must explore new ways to target and reach customers.

Scope

*The report uses consumer survey data as well as interviews with bank executives.

*Covers fixed personal loans, overdrafts and motor finance in Australia with the main focus on traditional fixed personal loans.

*Includes market share data for major personal loan providers and examines the latest competitor developments shaping the market.

*Provides discussion and analysis of several key issues facing Australian consumer credit lenders.

Highlights

The increase in bank market share at the expense of non-banks has occurred despite the competitive offerings of credit unions and building societies. However, many non-banks have cut back on loan approvals because of increased funding costs making new lending unprofitable. This can make direct comparisons between provider offerings misleading.

There are advantages for financial institutions to cross-sell personal loans rather than trying to reach entirely new customers groups. Not only is it cheaper to cross-sell to existing customers, but financial institutions have more data available for these consumers, and they thus pose a lower risk.

Industry insiders indicate having had success with segmenting personal loan customers based on the length of the loan. Personal loan customers that take out a loan for shorter terms have different purposes for their loans, look for different features, and have a distinct profile from borrowers who are looking for longer-term loans.

Reasons to Purchase

*Confirm what consumers look for when choosing a personal loan, and understand your target group better.

*Improve your profitability by tailoring your products to consumer needs.

*Receive updated market share data to tell you how your company compares to your closest rivals.


Report Highlights

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TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Market sizing and key issues 2
Competitor market shares and developments 5
Customer acquisition and retention strategies 8
Market Sizing and Key Issues 17
One in five Australian consumers have a personal loan and one in 10 plan to take one out 17
Personal credit has grown over the last decade but has declined slightly due to the downturn in the global economy 22
Fixed vehicle loans have fallen while refinancing has increased 26
Recent drops in the cash rate have not fully flowed through to personal loans 30
Competitor Market Shares and Developments 37
Over the last decade banks have steadily increased market share of fixed loans 37
NAB and ANZ have cemented their market share of outstanding bank personal loans 41
Customer Acquisition and Retention Strategies 46
Personal loans are often chosen by default rather than as the result of extensive research 46
Personal loan customers can be effectively segmented by length of loan 48
Product convergence and innovation will become more important 50
Low consumer confidence ensures that pricing continues to be of paramount importance 53
APPENDIX 58
Supplementary data 58
Definitions 85
Methodology 85
Further reading 86
Ask the analyst 86
Datamonitor consulting 86
Disclaimer 86


TABLE OF FIGURES
Figure 1: Outstanding personal credit reached its apex in May 2008, January 2000–August 2009 2
Figure 2: Fixed vehicle loans have lost in relative importance, January 2000–September 2009 3
Figure 3: Recent drops in the cash rate have not resulted in equivalent drops in banks’ average personal loans rate, January 2000–September 2009 4
Figure 4: Banks have increased market share of new fixed loans over the last decade, January 2000–September 2009 6
Figure 5: NAB has the highest market share of outstanding bank personal loans, September 2009 7
Figure 6: The most common reason for choosing a personal loan provider is already having a transaction account with the institution, April 2009 9
Figure 7: One in five Australian consumers hold a personal loan, April 2009 18
Figure 8: Original uses for main personal loan, April 2009 19
Figure 9: There is a wide range of personal loan sizes, April 2009 20
Figure 10: One in 10 consumers plan to take out a personal loan, April 2009 21
Figure 11: 14% of personal loan customers expect to hold their loan for less than a year, April 2009 22
Figure 12: Outstanding personal credit reached its apex in May 2008, January 2000–August 2009 23
Figure 13: Recently outstanding bank personal credit has fallen slightly, August 2007–August 2009 24
Figure 14: New monthly personal lending has held firm in the last several years, January 2000–September 2009 25
Figure 15: New lending has recovered in the last year, September 2007–September 2009 26
Figure 16: Fixed vehicle loans have lost in relative importance, January 2000–September 2009 27
Figure 17: Refinancing has grown in importance over the last two years, January 2008–September 2009 28
Figure 18: Personal loans are a significant source of fee income for banks, 2000–08 29
Figure 19: Personal loans commonly have no application fee attached, April 2009 30
Figure 20: Recent drops in the cash rate have not resulted in equivalent drops in banks’ average personal loans rate, January 2000–September 2009 31
Figure 21: The margin of the average bank term loan variable rate over the cash rate has increased drastically as a result of the economic crisis, January 2005–September 2009 32
Figure 22: Term loan rates have not fallen as much as mortgage rates, October 2007–September 2009 33
Figure 23: Australians have increased their leverage in the last decade, March 2000–June 2009 34
Figure 24: Australians have reduced their leverage in the last two years, September 2007–June 2009 35
Figure 25: The most common monthly payment is between A$250 and A$499, April 2009 36
Figure 26: Banks have steadily increased personal finance commitments over the last decade, January 2000–September 2009 37
Figure 27: Banks have increased market share of new fixed loans over the last decade, January 2000–September 2009 39
Figure 28: Banks capture an increasing proportion of new fixed loans, January 2008–September 2009 40
Figure 29: Banks have increased their market share of new fixed vehicle loans over the last two years, January 2008–September 2009 41
Figure 30: NAB has the highest market share of outstanding bank personal loans, September 2009 42
Figure 31: ANZ and NAB have increased market share in the last two years, January 2008–September 2009 44
Figure 32: Most banks have lost market share in the last two years, January 2008–September 2009 45
Figure 33: The most common reason for choosing a personal loan provider is already having a transaction account with the institution, April 2009 46
Figure 34: Consumers commonly do little research when choosing main personal loan provider, April 2009 47
Figure 35: The median personal loan term is five to six years, April 2009 49
Figure 36: Fees and rates are the most important factors when choosing a new personal loan, April 2009 54
Figure 37: Lower ranked factors include deposit requirements and repayment options, April 2009 55
Figure 38: A third of personal loans customers are experiencing financial stress, April 2009 56
Figure 39: A third of personal loans customers have cut back on household spending, April 2009 57


TABLE OF TABLES
Table 1: Personal loan holders and their different types of personal loans, April 2009 18
Table 2: Bank proportion of personal finance commitments, 2000–08 38
Table 3: Outstanding bank personal loans by competitor, January 2008–September 2009 43
Table 4: Borrower segmentation based on loan time 48
Table 5: Differences between personal loan market and credit card market 50
Table 6: Proportion of consumers with one or more personal loans, April 2009 58
Table 7: Original uses for main personal loan, April 2009 58
Table 8: Personal loan intentions, April 2009 59
Table 9: Personal loan term, time held personal loan, and time expected to hold loan, April 2009 59
Table 10: Total outstanding personal credit including securitizations and outstanding personal credit on the books of banks (A$ billions), January 2000–August 2009 60
Table 11: New monthly personal loans including fixed loans and revolving credit (A$ billions), January 2000–September 2009 61
Table 12: New monthly lending by type, October 2007–September 2009 62
Table 13: Non-housing personal debt ratios, March 2000–June 2009 63
Table 14: Original size of main personal loan, April 2009 64
Table 15: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 1 65
Table 16: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 2 66
Table 17: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 3 67
Table 18: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 4 68
Table 19: Bank fees paid by households for personal loans, 2000–08 68
Table 20: Application fee on main personal loan, April 2009 69
Table 21: Interest rates and margin over cash rate, January 2000–September 2009, part 1 70
Table 22: Interest rates and margin over cash rate, January 2000–September 2009, part 2 71
Table 23: Interest rates and margin over cash rate, January 2000–September 2009, part 3 72
Table 24: Interest rates and margin over cash rate, January 2000–September 2009, part 4 73
Table 25: Monthly payments and application fees on main personal loans, April 2009 73
Table 26: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 1 74
Table 27: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 2 75
Table 28: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 3 76
Table 29: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 4 77
Table 30: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 1 78
Table 31: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 2 79
Table 32: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 3 80
Table 33: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 4 81
Table 34: Proportion of new personal finance commitments captured by banks by purpose of loan, January 2008–September 2009 82
Table 35: Market share of outstanding bank personal credit not including mortgages or credit cards, January 2008–September 2009 83
Table 36: Reasons for choosing main personal loan provider, April 2009 83
Table 37: Sources of information when choosing main personal loan provider, April 2009 84
Table 38: Attitudes of personal loan customers, April 2009 84
Table 39: Considerations if taking out a personal loan, April 2009 85


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TABLE OF TABLES
Table 1: Personal loan holders and their different types of personal loans, April 2009 18
Table 2: Bank proportion of personal finance commitments, 2000–08 38
Table 3: Outstanding bank personal loans by competitor, January 2008–September 2009 43
Table 4: Borrower segmentation based on loan time 48
Table 5: Differences between personal loan market and credit card market 50
Table 6: Proportion of consumers with one or more personal loans, April 2009 58
Table 7: Original uses for main personal loan, April 2009 58
Table 8: Personal loan intentions, April 2009 59
Table 9: Personal loan term, time held personal loan, and time expected to hold loan, April 2009 59
Table 10: Total outstanding personal credit including securitizations and outstanding personal credit on the books of banks (A$ billions), January 2000–August 2009 60
Table 11: New monthly personal loans including fixed loans and revolving credit (A$ billions), January 2000–September 2009 61
Table 12: New monthly lending by type, October 2007–September 2009 62
Table 13: Non-housing personal debt ratios, March 2000–June 2009 63
Table 14: Original size of main personal loan, April 2009 64
Table 15: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 1 65
Table 16: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 2 66
Table 17: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 3 67
Table 18: Uses of new fixed personal loans (A$m), January 2000–September 2009, part 4 68
Table 19: Bank fees paid by households for personal loans, 2000–08 68
Table 20: Application fee on main personal loan, April 2009 69
Table 21: Interest rates and margin over cash rate, January 2000–September 2009, part 1 70
Table 22: Interest rates and margin over cash rate, January 2000–September 2009, part 2 71
Table 23: Interest rates and margin over cash rate, January 2000–September 2009, part 3 72
Table 24: Interest rates and margin over cash rate, January 2000–September 2009, part 4 73
Table 25: Monthly payments and application fees on main personal loans, April 2009 73
Table 26: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 1 74
Table 27: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 2 75
Table 28: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 3 76
Table 29: Monthly personal finance commitments by lender type (A$ billions), January 2000–September 2009, part 4 77
Table 30: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 1 78
Table 31: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 2 79
Table 32: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 3 80
Table 33: Proportion of new personal finance commitments captured by banks by type of loan, January 2000–September 2009, part 4 81
Table 34: Proportion of new personal finance commitments captured by banks by purpose of loan, January 2008–September 2009 82
Table 35: Market share of outstanding bank personal credit not including mortgages or credit cards, January 2008–September 2009 83
Table 36: Reasons for choosing main personal loan provider, April 2009 83
Table 37: Sources of information when choosing main personal loan provider, April 2009 84
Table 38: Attitudes of personal loan customers, April 2009 84
Table 39: Considerations if taking out a personal loan, April 2009 85

TABLE OF FIGURES
Figure 1: Outstanding personal credit reached its apex in May 2008, January 2000–August 2009 2
Figure 2: Fixed vehicle loans have lost in relative importance, January 2000–September 2009 3
Figure 3: Recent drops in the cash rate have not resulted in equivalent drops in banks’ average personal loans rate, January 2000–September 2009 4
Figure 4: Banks have increased market share of new fixed loans over the last decade, January 2000–September 2009 6
Figure 5: NAB has the highest market share of outstanding bank personal loans, September 2009 7
Figure 6: The most common reason for choosing a personal loan provider is already having a transaction account with the institution, April 2009 9
Figure 7: One in five Australian consumers hold a personal loan, April 2009 18
Figure 8: Original uses for main personal loan, April 2009 19
Figure 9: There is a wide range of personal loan sizes, April 2009 20
Figure 10: One in 10 consumers plan to take out a personal loan, April 2009 21
Figure 11: 14% of personal loan customers expect to hold their loan for less than a year, April 2009 22
Figure 12: Outstanding personal credit reached its apex in May 2008, January 2000–August 2009 23
Figure 13: Recently outstanding bank personal credit has fallen slightly, August 2007–August 2009 24
Figure 14: New monthly personal lending has held firm in the last several years, January 2000–September 2009 25
Figure 15: New lending has recovered in the last year, September 2007–September 2009 26
Figure 16: Fixed vehicle loans have lost in relative importance, January 2000–September 2009 27
Figure 17: Refinancing has grown in importance over the last two years, January 2008–September 2009 28
Figure 18: Personal loans are a significant source of fee income for banks, 2000–08 29
Figure 19: Personal loans commonly have no application fee attached, April 2009 30
Figure 20: Recent drops in the cash rate have not resulted in equivalent drops in banks’ average personal loans rate, January 2000–September 2009 31
Figure 21: The margin of the average bank term loan variable rate over the cash rate has increased drastically as a result of the economic crisis, January 2005–September 2009 32
Figure 22: Term loan rates have not fallen as much as mortgage rates, October 2007–September 2009 33
Figure 23: Australians have increased their leverage in the last decade, March 2000–June 2009 34
Figure 24: Australians have reduced their leverage in the last two years, September 2007–June 2009 35
Figure 25: The most common monthly payment is between A$250 and A$499, April 2009 36
Figure 26: Banks have steadily increased personal finance commitments over the last decade, January 2000–September 2009 37
Figure 27: Banks have increased market share of new fixed loans over the last decade, January 2000–September 2009 39
Figure 28: Banks capture an increasing proportion of new fixed loans, January 2008–September 2009 40
Figure 29: Banks have increased their market share of new fixed vehicle loans over the last two years, January 2008–September 2009 41
Figure 30: NAB has the highest market share of outstanding bank personal loans, September 2009 42
Figure 31: ANZ and NAB have increased market share in the last two years, January 2008–September 2009 44
Figure 32: Most banks have lost market share in the last two years, January 2008–September 2009 45
Figure 33: The most common reason for choosing a personal loan provider is already having a transaction account with the institution, April 2009 46
Figure 34: Consumers commonly do little research when choosing main personal loan provider, April 2009 47
Figure 35: The median personal loan term is five to six years, April 2009 49
Figure 36: Fees and rates are the most important factors when choosing a new personal loan, April 2009 54
Figure 37: Lower ranked factors include deposit requirements and repayment options, April 2009 55
Figure 38: A third of personal loans customers are experiencing financial stress, April 2009 56
Figure 39: A third of personal loans customers have cut back on household spending, April 2009 57



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