Personal Lending Innovations from Abroad 2009

Introduction

Since the start of the credit crunch, innovation in the UK unsecured personal loan market has been minimal compared to other countries. This brief looks at unsecured personal loan innovations from abroad and assesses their potential in the UK market.

Scope

*Examples of unsecured personal loan innovations from around the world.

*Expert opinion on the suitability of different personal lending innovations for the UK market.

*A look at how loan providers are adapting products to fit with changing global concerns.

Highlights

Banks in Asia offer loans that can be secured against non-property assets, such as equities and gold. These loans can act as a halfway house between unsecured loans and loans secured against property, offering benefits to both lenders and borrowers.

In the current climate, there is an increased risk of defaults on loans. EON Bank of Malaysia offers a loan that incentivizes prompt repayment by giving a discount of 1% of the sum advanced and penalizes late payments by adding a 1% levy.

Twitter offers banks the chance to re-engage with their customers. Bank of America has set up a Twitter feed that acts as a helpdesk, where customers can register their enquiries, and receive a response from the bank. This initiative has been well received, and can serve as a template for UK banks seeking to rebuild their reputations.

Reasons to Purchase

*Gain insight into how innovations in the unsecured loan market abroad might translate to the UK.

*Develop an understanding of the use of new technologies to promote loan uptake.

*Keep up-to-date with the latest product developments in unsecured personal lending.

Report Highlights
Highlights

Banks in Asia offer loans that can be secured against non-property assets, such as equities and gold. These loans can act as a halfway house between unsecured loans and loans secured against property, offering benefits to both lenders and borrowers.

In the current climate, there is an increased risk of defaults on loans. EON Bank of Malaysia offers a loan that incentivizes prompt repayment by giving a discount of 1% of the sum advanced and penalizes late payments by adding a 1% levy.

Twitter offers banks the chance to re-engage with their customers. Bank of America has set up a Twitter feed that acts as a helpdesk, where customers can register their enquiries, and receive a response from the bank. This initiative has been well received, and can serve as a template for UK banks seeking to rebuild their reputations.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The UK personal loans market has been severely affected over the last 12 months 2
Difficult conditions persist in the consumer credit market 2
Restrictions are being introduced on the sale of Payment Protection Insurance 3
The majority of loans are now used for debt consolidation 4
Banks must respond to these conditions through innovation and differentiation 4
Product design: some overseas banks offer loans secured against non-property assets 4
Banks in Asia offer debt secured against gold, equities and other assets 5
The Retail Banking team view 6
In the past, banks have been reluctant to enter this market 6
In the current climate, secured loans offer benefits to both parties 6
Mainstream provision of these loans could increase their attractiveness to the mass market 6
Customer segmentation: providers are increasingly targeting specific segments such as students, lower income consumers and those seeking 'green' loans 7
National Australia Bank offers lower income consumers access to low cost micro-loans 7
The Retail Banking team view 7
Danske Bank of Denmark offers low cost education loans to students with children 7
The Retail Banking team view 8
Several banks offer low-cost unsecured loans for environmental purposes 8
Bendigo Bank, Australia - 'Generation Green' range of products 8
BNP Paribas Fortis, Belgium - Energy Credit offering 9
RBC, Canada - Energy Saver Loan 9
Shiga Bank, Japan - carbon neutral loans 9
The Retail Banking team view 9
Incentives: rewards can be used to encourage good behavior 10
In Malaysia, EON Bank offers cashback to reward prompt repayments 10
The Retail Banking team view 10
Distribution: foreign banks make greater use of alternative channels for loan applications 10
Loan application via ATMs is commonplace in many other countries 10
Garanti Bank, Turkey 10
Cairo Amman Bank, Jordan 11
The Retail Banking team view 12
New technology: Twitter emerges as the next big communications medium for financial services companies 12
Banks in the US and Australia experiment with ways to exploit the new medium 12
Bank of America has pioneered the use of Twitter as a channel for responding to customer enquiries 13
Commonwealth Bank in Australia has gained favorable publicity through using Twitter 14
UBank is criticized for allegedly posting fictitious positive customer feedback 14
The Retail Banking team view 14
Banks need to treat Twitter as a two-way medium 14
Possible security concerns will need to be addressed 15
Consumers overseas can request up-to-date loan information via mobile banking 15
The Retail Banking team view 15
The Datamonitor view of the future of the UK unsecured loans market 16
Restrictions on the sale of PPI will lead to costlier loans 16
Loans will become more flexible in response to changing circumstances 16
Greater emphasis will be placed on online distribution 16
APPENDIX 17
Definitions 17
Bank of England base rate 17
Balances outstanding 17
CAGR 17
Consumer credit 17
Gross advances 17
Payment Protection Insurance (PPI) 17
Methodology 17
Further reading 17
Ask the analyst 18
Datamonitor consulting 18
Disclaimer 18
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List of Tables
List of Figures
Figure 1: There was a severe fall in unsecured lending in 2008, continuing into 2009 3
Figure 2: ICICI Bank in India offers a 'Loan Against Securities' 5
Figure 3: Garanti Bank can grant loans through its ATMs 11
Figure 4: Bank of America is using Twitter to deal with customer enquiries 13
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