UK consumers and banks

Only 20% of respondents to an EQ Credit Services survey are willing to borrow from an alternative lender in 2020, down from 62% in 2019.

The UK credit market has been upended by Covid-19 and the established high street banks have benefited from this shift, according to a survey of 2000 UK consumers conducted by EQ Credit Services, which provides a credit management platform.

The pandemic has made consumers less likely to take out a loan from alternative lenders, such as challenger banks and peer-to-peer (P2P) groups, and more likely to stick with traditional ‘safehouse’ institutions, according to the survey, following a year of financial uncertainty and turmoil.

“There is a new nervousness among consumers [of banking products] following everything that’s happened over the past 12 months,” says Richard Carter, managing director of EQ Credit Services.

Fewer than one in five respondents took out a loan of more than £1000 in 2020, compared to one in four in 2019, the report notes, and just 20% of respondents said they were likely to borrow from an alternative lender — down from 62% in 2019.

“Consumers are being more considered about the [banking] brands they use, because they are concerned things could get a bit tricky at some point in the future,” Mr Carter says, adding that consumers are reverting back to incumbent providers as a result.

There is a new nervousness among consumers [of banking products] following everything that’s happened

Richard Carter, EQ Credit Services

Several alternative lenders entered administration over the past year, including MyJar and Elevate Credit International. Provident Financial announced plans to close its doorstep lending business in May. Meanwhile, the collapse of P2P lender London Capital and Finance in 2019 — erasing 11,600 customers’ investments worth £237m — also damaged consumer confidence, he says.

More than half of consumers remain unclear of the mechanics behind how loans work with regards to terms and conditions, according to the report.

There was a decline in unsecured lending in 2020, according to the survey, with 49% of respondents citing ‘saving for the future’ as their top priority when it came to their immediate financial concerns. Meanwhile, 61% of people surveyed still insist on speaking directly to the lender during the application process.

Public confidence in UK banks steadily improved between 2014 and 2020, after hitting rock bottom in the aftermath of the 2008–2009 global financial crisis, according to consulting firm Gallup.

“The incumbent banks in the UK have been under pressure from new digital challengers, but have got a tremendous opportunity at present,” Mr Carter says.

“Consumers are voting with their feet, and coming back to incumbent banks because they see them as trusted brands. If they can further develop some of their technology and make their customer interactions a bit slicker, like some of the challenger banks and fintechs, then they’ve got a great chance of retaining [these returning] customers over the longer term.”

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