Customers and their loans—presentation based on analysis of the transaction data

1. Customers and their loans—presentation based on analysis of the transaction data Payday loans 14 February 2014

2. Section 1: Introduction and background

3. Introduction • In this presentation we set out descriptive statistics on the loans and customers of 11 major payday lenders* • Please refer to the methodology note for further details of how the data was collected and cleaned Payday lending market investigation

4. Data • We have collected customer and transaction level data from 11 major lenders, for all loans taken out in the period January 1 2012 to August 31 2013. • In total, the sample covers 15m loans, with a total value of around £3.9bn. • The sample provides information about 32 products. (A small number of products offered by the 11 lenders are excluded from the sample for various reasons, e.g. SRC’s Flex Account and[]) • Please refer to the working paper The firms and their customers (products and approvals) for details of products offered by the major lenders). Payday lending market investigation

5. The sample – loans by lender • [] • The online lenders account for just under 80% of all loans in the sample Payday lending market investigation

6. The sample – loans by product type • Longer term products (longer term instalment loans and open credit facilities) account for 4% of the sample Payday lending market investigation

7. Section 2: Customer demographics

8. Customer demographics • The mean age of a payday loan customer: 35 (online: 35, high street: 38). • 60% of payday loan customers are male –there is virtually no difference between online and high street Payday lending market investigation

9. Customer income profile • High street customers are more likely to be in lower income groups than online customers Payday lending market investigation

10. The average (median) annual take-home income of payday borrowers is lower than the average for the UK population. However, the difference between the average income of UK taxpayers and that of online payday borrowers is small. *source: HMRC, Survey of Personal Incomes 2010-11 Annual income after tax (general population) Payday lending market investigation

11. Customer age profile • Payday loan users are on average younger than UK population in general • Proportion of online customers in younger age groups is slightly higher than that of high street customers Payday lending market investigation

12. Section 3: Loan statistics

13. Section 3a: Loan statistics – total number and value of loans over time

14. Loan volume (2012) • There were fewer loans issued in the first two quarters of 2012 compared to the last two (peaks were observed in December, October and August) • A similar pattern is observed when the figures are broken down by distribution channel Payday lending market investigation

15. Loan volume – 2012 vs 2013 • The number of loans issued each month from January to July 2013 was higher than the number of loans issued in the corresponding month the year before. However, the difference between the corresponding months in 2013 and 2012 was decreasing over time. In August 2013 the number of loans issued was lesser than in August 2012. Payday lending market investigation

16. Loan value – 2012 vs 2013 • Comparing the total value of loans, we observe a similar pattern Payday lending market investigation

17. Section 3b: Loan statistics – seasonality in borrowing

18. Loan volume by day of week • The number of loans made peaks on Fridays, with an average volume around three times that of Sundays (and 50% higher than other days) Payday lending market investigation

19. Loan volume by day of month • Loan volume is highest towards the beginning and end of the month, although loans are made throughout Payday lending market investigation

20. Section 3c: Loan statistics – loan amount and duration

21. Loan value – headline figures • The average value of a payday loan made by the 11 major lenders in our sample is £260 (12 months to August 2013) • The modal (most common) loan amount is £100 (around 13 percent of all loans) – we also see peaks at £200 (8%), £150 (7%), £300 (5%), £50 (5%) • Those borrowing from high street lenders generally borrow less than those borrowing online. The mean amount borrowed from a high street lender in our sample is £180, compared to £290 for those borrowing online. Payday lending market investigation

22. Loan value – distribution • 25% of loans are for £100 or less, 50% of loans are for £200 or less, 90% of loans are for £570 or less Payday lending market investigation

23. Loan value – by lender • The average loan amounts vary between lenders. The mean ranges from £163 to £326. The modal (most common) amount borrowed is £100 for the majority of lenders in the sample. Payday lending market investigation

24. Top-ups • Two of the largest lenders, Wonga and CashEuroNet allow top-ups on the initial loan (before the agreed due date) • In the 12 months to August 2013, [] of Wonga loans and [] of CashEuroNet loans were topped-up; taken together these account for [] of all loans in our database • The average value of a top-up was [] for Wonga and [] for CashEuroNet ([] overall). Payday lending market investigation

25. Loan value – proportion of maximum amount available to be borrowed Amount borrowed as proportion of the total amount available to be borrowed at the time of application • Just over 20% of customers take out the maximum amount possible – a half take out less than half the amount originally available. Payday lending market investigation

26. Loan duration – distribution • If we exclude the longer term products, the average duration of a payday loan made by the 11 major lenders in our sample is 22 days • Around 14% of loans are taken out for a fortnight (13 – 15 days), around 19% of loans are taken out for a month ( 28-31 days) • Those borrowing online generally borrow for shorter periods than those borrowing on the high street, with an average loan duration of 21 days for an online customer, and 24 days for a high street customer Payday lending market investigation

27. Loan duration – distribution • 10% of customers borrow for 1 week or less, 90% of customers borrow for 34 days or less Payday lending market investigation

28. Loan duration (days) – by lender • Looking at individual lenders, the mean loan duration ranges from 16 to 37 days . The most common (modal) loan duration is 28 days for 5 out of 11 lenders. Payday lending market investigation

29. Share of supply of 2 week and 4 week loans by lender • There is a considerable difference between the proportions of 2 week and 4 week loans in the sample for most lenders. The exceptions are: [] , [] and [] for which the difference is relatively small. • [] Payday lending market investigation

30. Section 3d: Loan statistics – repayment

31. Repayment status of loans – online vs high street • 64% of all loans are repaid in full early or on time (i.e. on or before the due date agreed at the time loan was taken out) • 67% of online loans are repaid in full early/on time compared to 55 % of high street loans • NB Loans repaid in full late or never repaid in full may have been partially repaid. Payday lending market investigation

32. Repayment status of loans – by lender • Substantial differences exist between lenders: proportion of loans repaid in full late or never repaid in full ranges from around 20% to 80%. • NB Loans repaid in full late or never repaid in full may have been partially repaid. Payday lending market investigation

33. Repayment status of loans – new vs repeat • 50% of new loans were repaid in full late or never repaid in full, compared to 33% of repeat loans. • A new loan is defined as the first loan taken by a customer with a given lender. Some of the customers taking out a new loan with a particular lender may have taken out previous loans with other lenders. • NB Loans repaid in full late or never repaid in full may have been partially repaid. Payday lending market investigation

34. Repayment status of NEW loans – online vs high street • A slightly greater proportion of NEW high street loans were repaid in full late or never repaid in full compared to online loans (54% compared to 49%) • However, the proportion of new high street loans never repaid in full (25%) was lower than the corresponding proportion of new online loans (27%) • NB Loans repaid in full late or never repaid in full may have been partially repaid. Payday lending market investigation

35. Loans repaid in full early/on time, new vs repeat loans – by lender • As expected, the proportion of new loans repaid in full early/on time is lower than the proportion of repeat loans repaid in full early/on time for most lenders. The biggest differences are observed for [] and [] . • [] is the only lender in the sample for which the proportion of new loans repaid in full early/on time is (slightly) greater than the corresponding proportion of repeat loans. Payday lending market investigation

36. Loans never repaid in full, new vs repeat loans – by lender • For all lenders, repeat loans are less likely than new loans to be never repaid in full. • The biggest differences between new and repeat loans are observed for [] , [] and [] . • NB Loans repaid in full late or never repaid in full may have been partially repaid. Payday lending market investigation

37. ‘Late’ loans - distribution of days overdue • A late loans is defined as a loan that is repaid in full, but after the originally agreed repayment date. Loans that are rolled over or never repaid in full are excluded. • 16% of ‘late loans’ are repaid one day after the originally agreed repayment date, 46% are repaid within one week of that date and 74% are repaid within four weeks. Payday lending market investigation

38. Repayments on loans vs amount due and amount lent • The total amount lent is the total value (sum of principals) of loans issued in 2012. • The amount originally due reflects the amount agreed with the customer at the time the initial loan was taken out. Depending on customer’s repayment behaviour the actual amount due might be lower (if the customer repays early) or higher (e.g. if the customer tops-up the initial loan, rolls over, or defaults on it). • The total amount repaid includes the principal (incl. any top-ups), interest and fees on the initial loan as well as top-ups, rollover and default fees. • 00 Payday lending market investigation

39. Repayments before/on/after original due date • As of 1st October 2013 , of all repayments made on loans taken in 2012 (including both principal repaid and fees/interest), 73% were made before/on the originally agreed due date. Note we are unable to observe what proportion of due repayments were never made Payday lending market investigation

40. Repayments before/on/after original due date – by lender • Again, there are substantial differences between lenders. Repayments made after the originally agreed repayment date expressed as proportion of all repayments range from 6% to 77% in our sample. Note we are unable to observe what proportion of due repayments were never made Payday lending market investigation

41. Section 3e: Loan statistics – rollovers

42. Rollovers – online vs high street • A greater proportion of high street loans have been rolled over: 26% compared to 16% of online loans. • There was no difference observed between new and repeat loans. Payday lending market investigation

43. Rollovers– by lender • Proportion of loans subsequently rolled over varies significantly between lenders, ranging from 0% ([]) to 55% ([]) Payday lending market investigation

44. Rollovers • A greater proportion of high street loans have been rolled over more than 6 times compared to online Payday lending market investigation

45. Rollovers – month by month • We observe a very small change (decrease) in the proportion of loans rolled over more than 3 times in the first few months of 2013 • This slight decrease might be explained by the introduction of the new industry codes in November 2013, which limit the number of times a loan is allowed to be rolled over to 3. Payday lending market investigation

46. Significance of rollover charges to payday lenders • In the final few slides we present some initial evidence about the significance of the interest and fees associated with rollovers to payday loan companies. • We begin by defining key concepts that we are using to explore this issue. • We then calculate the amount of rollover interest and fees charged by lenders, relative to the initial interest and fees charged. • This measure gives an indication of the significance of rollover charges to lenders’ income, although is limited in that it does not reflect the interest and fees actually received by lenders. • Finally we set out some possible areas for further analysis of this issue using the customer and transaction level data. Payday lending market investigation

47. Some key concepts • A loan that is rolled over will comprise: • An initial loan (i.e. the loan originally applied for by the customer up to its original due date) and • One or more rollover loans with a revised due date as agreed between the customer and lender • Fees and interest will be charged on both the initial and rollover loans • On an initial loan, these will include the interest payable in the initial loan period , any transmission fees or other charges incurred during this period. • On a rollover loan, these will include any charge for arranging the rollover and any interest and charges applicable to subsequent loan periods • Fees charged by a lender may differ from fees received by the lender, if a customer does not pay a particular charge (e.g. because of default) First rollover loan Second rollover loan Initial loan Payday lending market investigation

48. The significance of rollover charges • Rollover interest and fees account for 34% of all fees and interest charged to customers (excluding late fees, top-up fees, and ignoring any discounts given to those repaying early) • There is a considerable difference between online and high street loans (32% vs 40%) Payday lending market investigation

49. The significance of rollover charges – by lender • The relative significance of rollover interest and fees varies substantially between lenders. The proportion of rollover fees and interest in all fees and interest charged to customers (excluding late fees, top-up fees, and ignoring any discounts given to those repaying early) ranges from 0% for [] ([] does not offer rollovers) and 11% for [] to 60% for [] . Payday lending market investigation

50. Further work on this issue The evidence presented above provide an indication of the significance of rollover charges to payday lenders, and the extent to which this varies between distribution channels and lenders. The main limitation of this approach is that it does not reflect the interest and fees actually received by lenders. This may differ from the interest and fees charged because of differences in the extent to which different groups of customers repay the amount that they owe. For this reason, we propose to carry out some further work exploring the actual repayments made by customers that do and do not rollover their loan. This further analysis is more complex and is likely to require additional assumptions to be made, for example about how actual repayments should be allocated between charges and the principal on the loan, and between the initial loan and any subsequent loans. Payday lending market investigation