Personal Lending Innovations from Abroad

The commoditized nature of unsecured personal loans has stifled the innovation process in the UK. This brief looks at unsecured personal loan innovations from abroad and assesses their potential in the UK market.

Report Highlights
Despite the launch of Shariah banking in the UK, unsecured personal loans are not yet widely available under Shariah Law. In Dubai however, banks are careful to ensure that they offer loans that are consistent with the principles of Shariah Law.

Mobile banking in the UK is still a very marginal activity, with only about 25,000 using mobile banking network Monilink in 2007. Mobile technology is unlikely to be used unless it is free and if it is free then the provider will bear the cost. This explains in part why mobile banking has yet to take off in the UK.

In Dubai, bundling other financial products with an unsecured personal loan is a popular strategy to attract customers. HSBC UAE is offering a current account with its usual minimum balance requirement waived and a free credit card for one year with its flexible personal unsecured loan.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Product design: the rest of the world has strived to make the unsecured personal loan a more dynamic product 2
Banks in Dubai offer customers leveraged investment products 2
The Retail Banking Team view 3
Dubai loan products are Shariah compliant 4
The Retail Banking Team view 4
Loan providers are offering a plethora of products that profess to care for the environment 4
The Retail Banking Team view 5
Pricing structure: some French banks charge different interest rates depending on region 5
Crédit Agricole offers a simulation facility for loan payback that accounts for regional differences 5
The Retail Banking Team view 6
Repayment options: lenders from abroad tend to offer much more flexibility with their loan repayment options 6
In Singapore, GE Money's James personal loans offers flexible repayment options 6
The Retail Banking Team view 6
Loan Trimmer provides borrowers with tax savings 7
The Retail Banking Team view 7
Many banks allow customers to redraw their funds 8
The Retail Banking Team view 8
Bundling: unlike their foreign counterparts, UK banks do not tend to bundle products, instead they favor standard cross-selling techniques 8
Bundling products to existing customers is common in Dubai and Australia 8
The Retail Banking Team view 9
Customer segmentation: loan providers are expanding their loan offerings to take account of different consumer segments 9
Loan providers in the French market have a strong focus on providing loans to the young 9
The Retail Banking Team view 9
Loans for RRSP in Canada 10
The Retail Banking Team view 10
Distribution: the use of SMS messages to apply for loans is more advanced abroad than in the UK 10
Turkish banks are offering customers the chance to apply for a loan through their mobile phone 10
Swedish SMS message loan providers have proved popular among the young 11
The Retail Banking Team view 11
New technology: loan providers are gravitating towards social networking sites as the next stage for selling loans 11
Social lending has emerged with the popularity of social networking sites 11
The Retail Banking Team view 12
Financial institutions have started advertising financial products on social networking sites 12
The Retail Banking Team view 13
APPENDIX 15
Definitions 15
Offset mortgage 15
SIPPs (Self Invested Personal Pensions) 15
Methodology 15
Further reading 15
Ask the analyst 15
Datamonitor consulting 15
Disclaimer 15
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Table 1: Comparison of repayment rates for an equivalent loan across four different French counties 5
Figure 1: Mashreq website outlining key features for loans against shares product 3
Figure 2: Screenshot of Facebook Lending Club application 12
Figure 3: Financial service providers regularly advertise on platforms such as Facebook 13
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