Personal Lending in Australia 2004: Industry Report

Personal Lending in Australia 2004

Product Type: Market Research Report
Published by: Datamonitor
Published: March 2004
Product Code: R313-6591

Description

Introduction
At the beginning of 2004, Australian consumer credit aggregates amounted to more than AUS$95 billion. Yet, the end of 2003 saw increases in the Reserve Bank's cash rate target. What will the new macroeconomic environment mean for competitors in the Australian personal lending market, and which products and competitors will be the ones to watch in 2004?

Scope
Australian personal lending market including personal loans, credit cards, personal overdrafts, retail finance, equity unlock loans and margin loans

Wealth of data from various primary and secondary sources, including a series of in-depth interviews with experts working in the lending industry

Includes competitor market share information for the Australian personal loan, credit card and personal overdraft market

Provides five-year forecasts of the personal lending market according to two scenarios

Report Highlights
As Australia dithers on the collection of positive credit record information many Asian countries are improving the amount of positive credit record information that they collect.

Although over the period 1999-2003 the big five Australian banks have grown their combined share of the credit card market, since 2001 they have actually seen their market share fall by more than five per cent.

As there is a growing divergence between the value and cost of credit card reward schemes consumers whose card choices are motivated by these schemes will consider charge cards more attractive. However, it is prudent not to exaggerate the potential for charge card companies to increase their market share over the next few years.

Reasons to Purchase
Benefit from Datamonitor’s independent opinion on the competitors and products that will perform well in 2004.

Identify future competitive threats and opportunities facing players in the personal lending market.

Gain invaluable insight into the future direction of the Australian personal lending market using Datamonitor’s unique five-year market forecasts.

Table of Contents

TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY 3

Introduction 3

Market context 3

Competitive dynamics 6

The Future Decoded 9

CHAPTER 2 INTRODUCTION 23

What is this report about? 23

Who is the target reader? 23

How to use this report 24

CHAPTER 3 MARKET CONTEXT 25

Introduction 25

Consumer credit has exploded 25

Credit aggregates stood at AUS$95.9 billion at the end of 2003 25

Consumer lending commitments surpassed AUS$65.0 billion in 2003 27

Macroeconomic conditions have been conducive to growth in consumer credit 30

Lower rates have made borrowing more affordable 38

Personal loans: still the major component of the Australian personal lending market 39

Personal loan balances outstanding stood at AUS$52.2 billion in 2003 39

Credit cards: a star product in the Australian personal lending market 41

Credit card balances have hit a record high 42

Major changes are now on the cards 53

Overdrafts: a stale product category 58

Balances outstanding on overdrafts now amount to less than AUS$10 billion 58

Margin loans: not for the faint hearted 60

Margin loans explained 60

Retail finance: an alternative credit source 64

Sizing the retail finance market 64

Overindebtedness: the negative side of the consumer credit explosion 66

Measuring the extent of indebtedness 66

Determining the extent of overindebtedness 72

Insufficent credit record information contributes to the problem of overindebtedness 80

Indebtedness: is there cause for concern? 82

Conclusion 83

CHAPTER 4 COMPETITIVE DYNAMICS 84

Competitor balances outstanding 84

Personal loan market: the big five have lost market share 84

Credit cards: the big five hold more than 80 per cent of the market 87

Overdrafts: balances outstanding for the largest five banks grow slowly as the market stagnates 90

Pricing strategies in the Australian personal loan market 92

Possible loan pricing strategies 92

The reflection of changes to the interchange regime in the credit card market 96

Reward schemes are being cut back 96

The charge card companies stand to benefit 97

The growing differentiation within the credit card market 98

Low rate and high rate cards 98

Innovative products in the Australian personal lending market 102

Flexible credit cards come to Australia 103

Commonwealth Bank enters the Platinum card market 107

Equity unlock loans: awareness is growing 109

The St George Get Set Loan: an excellent customer retention tool 111

Competitor profiles 112

Virgin Money: shaking up the Australian credit card market 112

The view of the Datamonitor financial services team 117

GE: targeting the personal lending market on a number of fronts 119

The view of the Datamonitor financial services team 123

Conclusion 124

CHAPTER 5 THE FUTURE DECODED 126

Future competitive threats 126

Existing financial services providers 126

European banks 127

The online players 128

Asian banks 128

Other overseas entrants from within financial services 129

Entrants from outside of financial services 130

Market forecasts 131

Neutral scenario: still strong growth 132

Pessimistic scenario: a slowdown hits 135

CHAPTER 6 APPENDIX 139

Supplementary data 139

Market Context 139

Competitive Dynamics 144

The Future Decoded 146

Definitions 146

Research methodology 150

Market sizing methodology 150

Personal loans 150

Overdrafts 151

Forecasting methodology 151

Relevant readings 151

Briefings 151

Reports 152

Future readings 152

Briefings 152

Reports 152

Relevant links 153

Datamonitor’s custom research capabilities 153

SPP writing team 155

How to contact experts in your industry 155

LIST OF TABLES

Table 1: Australian consumer credit aggregates, 1994-2003 27

Table 2: Australian consumer lending commitments, 1994-2003e 30

Table 3: Balances outstanding on personal loans, 1994-2003 41

Table 4: Australian credit card balances outstanding, 1994-2003 44

Table 5: Number of credit card accounts in Australia with and without an interest free period, 1994-2003 47

Table 6: Average monthly spending on credit and debit cards, 1994-2003 49

Table 7: Credit card spending as a percentage of retail trade, 1994-2003 50

Table 8: Total aggregate value of credit limits on Australian credit cards, 1994-2003 52

Table 9: Balances outstanding on personal overdrafts, 1999-2003 59

Table 10: The average number of margin calls per day per 1,000 clients and the All Ordinaries Price Index, September 2000-December 2003 62

Table 11: Balances outstanding on margin loans and number of margin loan client accounts, September 2000 - December 2003 64

Table 12: Total personal and housing debt outstanding per Australian adult, 1999-2003 68

Table 13: Personal debt outstanding per person in the UK, 1994-2003e 70

Table 14: Credit card balances outstanding per account and per person, 1999-2003 71

Table 16: Competitor balances outstanding in the Australian personal loan market, 1999-2003 86

Table 17: Competitor balances outstanding in the Australian credit card market, 1999-2003 89

Table 18: Competitor balances outstanding in the Australian personal overdraft market, 1999-2003 92

Table 19: The ten standard credit cards with the lowest interest rates, February 2004 99

Table 20: The ten standard credit cards with the highest interest rates, February 2004 102

Table 21: Competitors in the Australian Platinum cards market 108

Table 22: Equity unlock loans on offer in the Australian market 110

Table 23: Options available on the Virgin credit card (UK) 115

Table 24: Direction ratings of future competitive entry into the Australian personal lending market 131

Table 25: Neutral scenario forecasts of macroeconomic variables, 2004f-2008f, 133

Table 26: Forecasts of product balances outstanding under Datamonitor’s neutral scenario, 2004f-2008f 135

Table 27: Pessimistic scenario forecasts of macroeconomic variables, 2004f-2008f, 136

Table 28: Forecasts of product balances outstanding under Datamonitor’s pessimistic scenario, 2004f-2008f 138

Table 29: Lending commitments for refinancing, 1994-2003e 139

Table 30: Average exchange rates, 1994-2003 140

Table 31: Disposable income, personal debt and housing debt, March 1990 - September 2003 141

Table 15: Causes of personal insolvency, 2001/2002 and 2002/2003 142

Table 32: Number of Part IV and XI bankruptcies, 1986/87 - 2002/2003 142

Table 33: Part X agreements and debt agreements, 1986/87 - 2002/2003 143

Table 34: Number of debt agreements reached by state, Q4 2002-Q4 2003 143

Table 35: Competitor percentage market shares in the Australian personal loan market, 1999-2003 144

Table 36: Competitor percentage market shares in the Australian credit card market, 1999-2003 145

Table 37: Competitor percentage market shares in the Australian personal overdraft market, 1999-2003 145

Table 38: Forecasts of product balances outstanding under Datamonitor’s neutral scenario, 2004f-2008f, market share by product 146

Table 39: Forecasts of product balances outstanding under Datamonitor’s pessimistic scenario, 2004f-2008f, market share by product 146

LIST OF FIGURES

Figure 1: Consumer credit aggregates stood at AUS$95.9 billion at the end of 2003 having grown by more than 25 per cent over the previous two years 4

Figure 2: Average monthly spending on credit cards during 2003 was more than double that on debit cards 5

Figure 3: Commonwealth Bank remains the largest player in the Australian credit card market with balances outstanding of AUS$5.2 billion and a market share of 23.1 per cent 7

Figure 4: Consumer credit aggregates stood at AUS$95.9 billion at the end of 2003 having grown by more than 25 per cent over the previous two years 25

Figure 5: Personal fixed and revolving lending commitments have increased significantly in the last ten years but the most dramatic growth has been in revolving commitments 28

Figure 6: Though increased twice towards the end of 2003 the Reserve Bank’s cash rate target remains low 31

Figure 7: Australian GDP growth remains fairly strong 32

Figure 8: Retail trade in 2003 amounted to more than AUS$180 billion 33

Figure 9: At the end of the first half of 2003 the Australian house price index for an established house stood at 224 index points 34

Figure 10: Over the last few years lending commitments for refinancing have increased dramatically by at least 25 per cent per year 35

Figure 11: Evidence that the Australian housing market is slowing down 36

Figure 12: Lending rates have fallen since 1990 tracking the cash rate target 38

Figure 13: Balances outstanding on personal loans have increased dramatically during the last two years. At the end of 2003 balances outstanding stood at AUS$52.2 billion 39

Figure 14: Balances outstanding on Australian credit cards amounted to AUS$24.1 billion at the end of 2003 42

Figure 15: December 2003 saw credit card balances outstanding increase by AUS$0.8 billion, the largest increase in monetary terms since records began 44

Figure 16: The number of credit card accounts in Australia is now nearing 10 million 45

Figure 17: Average monthly spending on credit cards during 2003 was more than double that on debit cards 47

Figure 18: Since 2000 credit card spending has amounted to more than 50 per cent of retail trade 49

Figure 19: The total aggregate value of credit limits on Australian credit cards has increased by 274 per cent since 1994 50

Figure 20: New interchange fees introduced at the end of October 2003 54

Figure 21: Balances outstanding on personal overdrafts amounted to AUS$9.6 billion at the end of September 2003 having increased from AUS$8.2 billion in September 1999 58

Figure 22: The average number of margin calls per day per 1,000 clients peaked in September 2001 and March 2003, two months when share market performance was particularly poor 60

Figure 23: The number of investors using margin loans continues to increase as does the amount being invested. The aggregate value of margin loans outstanding in the last quarter of 2003 amounted to AUS$12.5 billion 62

Figure 24: At the end of 2003 there was more than AUS$35,000 in personal and housing debt outstanding per Australian adult 66

Figure 25: Datamonitor estimates that at the end of 2003 the average adult in the UK owed GBP£4,426 in personal debt 68

Figure 26: At the end of 2003 an average of AUS$2,466 was outstanding on each Australian credit card account 70

Figure 27: While until recently personal debt has increased in line with disposable income, housing debt has shot upwards 71

Figure 28: Excessive use of credit remains the second most common cause of personal insolvency 73

Figure 29: After increasing in the late 1990s, the number of Part IV and XI bankruptcies has plateaued in the last few years 74

Figure 30: The number of Part IX debt agreements has shot up since their introduction in December 1996. In the meantime the number of Part X Agreements has fallen to less than 300 during 2002/2003 76

Figure 31: New South Wales and South Australia witnessed large increases in the number of debt agreements reached between Q4 2002 and Q4 2003 77

Figure 32: The ‘big five’ now have combined personal loan balances outstanding of AUS$39.1 billion 84

Figure 33: Commonwealth Bank remains the largest player in the Australian credit card market with balances outstanding of AUS$5.2 billion and a market share of 23.1 per cent 87

Figure 34: Combined personal overdraft balances outstanding for the largest four players have stagnated in a slowly growing market 90

Figure 35: Possible loan pricing strategies 92

Figure 36: Website interactivity allows Intech Titanium Visa applicants to determine the characteristics of their credit card 103

Figure 37: The St George It’s Your Choice card program 105

Figure 38: In the UK Virgin has not only sustained its low rates. The rate on its lowest rate card option is now further below the market average APR than when the card was launched 115

Figure 39: SWOT analysis of Virgin Money 118

Figure 40: SWOT analysis of GE 123

Figure 41: Total consumer credit balances outstanding in 2008 will amount to AUS$109.3 billion 133

Figure 42: Total consumer credit balances outstanding in 2008 will amount to AUS$74.8 billion 136

Figure 43: The research methodology used in Personal Lending in Australia 2004 149

Figure 44: Datamonitor’s core consulting capabilities 153

CHAPTER 2

Ordering and More Information

Price and Delivery Options

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