Financial exclusion is rightly a major focus of Government and organisations promoting consumer welfare. Not having access to a credit card makes it increasingly difficult to operate in the modern world. Credit cards allow people to shop conveniently in the high street, by telephone or on the Internet, to manage emergencies, and are useful when travelling abroad. However, many people – including those with little or no credit history, those who have had credit problems in the past but are now over them, and those on lower incomes – can find themselves excluded from this valuable facility.
Vanquis Bank is bringing the benefits of credit cards, in a responsible way, to people who can find themselves excluded by mainstream card issuers. Credit card limits start at £250 and are significantly lower than those of mainstream lenders. A high level of contact with our customers helps them stay in control.
Vanquis Bank started trading in 2003. After a period of market testing, full product launch in the UK commenced in January 2005.
Vanquis Bank operates in the non-standard sector of the UK credit card market. Our customers are on average to below average incomes; typically earning between £12,000 and £25,000 per year. They use our card for the same kinds of things that mainstream card users use their cards for – such as shopping at the major supermarkets and on Internet sites.
Customer acquisition channels
Referrals from third parties
We are different from other issuers in that our products are designed for people that most other credit card providers see as being too much of a credit risk. We are more comfortable with this market because of our long experience of home credit, and the experience and skills of Vanquis Bank’s management team, a significant proportion of whom have a background in serving non-standard credit customers.
Vanquis Bank is willing to lend in this market sector but does so with the risks in mind.
We operate a ‘low and grow’ strategy. We are willing to take a sensible risk with people but we want to limit our exposure at the beginning of the relationship, so we set a much lower credit limit than mainstream card issuers. Around half of our accounts start with a credit limit of £250 and £1,000 is the maximum initial credit limit. Credit lines for mainstream card issuers would be much higher than this. We then look at the payment performance on the account and recheck external credit bureau data every month with a view to giving controlled increases, or indeed decreases, in credit limits when it is appropriate to do so.
Two-thirds of our customers are taken on at our typical APR of 39.9%. Given the nature of our customers and products, we have higher default rates than the norm in the UK credit card market. Our interest rates reflect that risk and so our revenue yield is higher. Our default charges are in line with those of the mainstream credit card providers.
Vanquis Bank is also different from other lenders in that it maintains a high level of customer contact throughout the life of the account. For instance, during the application process, any customer taken on with an interest rate higher than 39.9% APR will have a telephone interview with one of our customer support staff before their card is authorised. If we cannot speak to the customer we will turn down the application. Our thinking is that if we cannot contact the customer at this stage, we will probably have trouble contacting them later if they experience problems. This basic, common sense approach is by no means typical with other card issuers. We also contact customers at any time they appear to be struggling to make payments. Our customers also choose to contact us much more frequently than would be typical with other card issuers.
There are over 10 million people in the UK in the non-standard credit market. Within that market we think somewhere between four and five million people are suited to our credit card product. Some of those customers are already with our direct competitors and some are with mainstream credit card providers. With 426,000 customers at present, we have well below 10% of the non-standard market.
Approaching half of the new customers we take on have no other credit cards. The nature of the credit market at present means that mainstream credit card providers may not feel able to continue serving some of their customers – many of whom may have been better suited to our type of credit card in any case.
Vanquis Bank’s strategy
Vanquis Bank’s strategy is to bring the business up to an operational scale that will produce significant profitability. The business’s new, medium-term target is to grow receivables to £450m by the end of 2012 whilst maintaining a post-tax return on equity of 30%.
Managing Director, Vanquis Bank
Having a Vanquis Bank credit card means Adam can choose from a wider range of products on the Internet...