Strategy and market overview

Strategy

Led by a management team with many years of experience in the non-standard finance market, NSF’s strategy is to sustainably grow its acquired businesses, achieving appropriate and attractive risk-adjusted returns for shareholders. We have set ourselves the medium-term target of delivering 20% loan book growth per annum and a 20% return on assets.

UK market overview

Regulated by the Financial Conduct Authority (FCA), non-standard consumer finance is a large market providing secured and unsecured credit to an estimated 10 million consumers that either fail to meet the lending requirements of high street financial institutions because of limited or impaired credit histories, or that choose not to borrow from them.

  • While the demand for credit from consumers remains strong, its supply, particularly to those with limited or impaired credit histories was severely impacted post the financial crisis in 2007/8 when a number of providers were forced to reshape their business models with the result that they withdrew from the non-standard finance segment.
  • The chart below highlights the continuing demand for credit with Other loans and advances representing the fastest growing area

  • Key drivers of lending volumes include unemployment and wages – both of which play a key role in driving customers’ ability to service and repay any loans:


  • The supply of credit, particularly to consumers at the lower end of the credit quality spectrum was severely impacted by the financial crisis that began in 2007. Many providers, including several mainstream lenders, withdrew altogether creating a mis-match of supply and demand:
  • The chart above highlights the run-off in inactive loans between 2008 and 2014 that delivered an overall decline in the size of the UK’s non-standard lending market between 2008 and 2011.
  • Businesses operating in non-standard consumer finance are mainly non-bank finance companies and the majority of these focus on the delivery of only a few financial products

Regulation

The provision of non-standard finance as well as several related business activities such as debt collections and broking are regulated by the FCA who took over from the Office of Fair Trading in April 2014.

Regulatory reforms brought in by the FCA have significantly increased capital requirements and conduct-related obligations for the providers of retail financial services. In addition, the FCA has required all such firms to apply for the requisite licences to operate in their chosen field of consumer finance, a process that has affected over 50,000 businesses. This change in the licencing regime as well as the impact of additional regulations will impose substantial restrictions on certain elements within the non-standard finance sector – creating a significant opportunity for NSF.

In addition to the FCA’s general provisions and high-level principles for business, companies engaged in credit-related regulated activities are governed by the FCA’s Consumer Credit Sourcebook or CONC that sets out the detailed obligations and requirements for licenced firms in the UK. Further details can be found on the FCA’s website here.

Our business

NSF has a leading presence in three segments of the UK’s non-standard finance market.

Home credit

In home credit, Loans at Home is the third largest provider of unsecured personal loans with almost 100,000 active customers, over 800 self-employed agents and 300 staff.

Branch-based lending

In branch-based lending, Everyday Loans is the largest non-bank provider of branch-based unsecured consumer loans with over 35,000 customers and 36 branches across the UK.

Guaranteed loans

Trusttwo provides guaranteed loans online to UK adults who have a limited or impaired credit history.