Purpose

We help put people on a path to a better everyday life. We are a specialist lender, here to provide financial inclusion to the 1 in 5 UK adults who are not well served by mainstream lenders. This unifies us and is something we can get behind both practically and emotionally.

Progress

The Strategic Blueprint provides guidance to make the right decisions to deliver our strategy on a daily basis. This entitles us to drive the business forward to deliver our Vision for the Future.

At a glance

Chairman’s statement

At the end of my first full year as Chairman of the Group, I am delighted with the progress that has been made by the Chief Executive Officer, the wider management team and all employees under extremely challenging circumstances. We have strengthened the business, continued to rebuild trust with regulators and defended an unsolicited takeover bid from NSF.

Chief Executive Officer's review

Provident Financial is the market leader in a large market, where there are clear opportunities to grow customers, market share, product, distribution, and move into new market segments.

2,319k
Customer numbers
£2,212.6m
Amounts receivable from customers
47.3p
Adjusted basic earnings per share
£162.6m
Adjusted profit before tax

Our businesses

Home credit

Provident home credit remains the market leader and is the only home credit provider with a truly national footprint, operating throughout the UK and also the Republic of Ireland. The home credit market remains an important source of financial inclusion and has stabilised following the disruption caused by Provident’s move to a new fully employed operating model in the UK in 2017.

  • Customers

    386,000

  • Employees

    2,800

  • Adjusted loss before tax 1

    £20.8m

  • Loan range

    £100–£2,500

Online lending

Satsuma was launched in 2013 in response to consumers’ growing appetite to transact their financial business online. Satsuma has since grown to secure a top 3 position in the high-cost short-term credit market. The market has experienced a significant amount of disruption due to the evolution of the regulatory environment.

  • Customers

    136,000

  • Loan range

    £100–£1,000

Credit cards

Vanquis Bank has been active in the credit card market in the UK since 2003 and has grown to become the largest part of the Group and the largest player in the credit card market for consumers not well served by mainstream lenders. Vanquis Bank offers a range of card products at differing price points to reflect consumers’ varied risk profiles.

  • Customers

    1.7m

  • Employees

    1,587

  • Adjusted profit before tax 1

    £173.5m

  • Loan range

    £1000–£5,000

Vehicle finance

Moneybarn was acquired by the Group in 2014 enabling us to broaden our offering into secured motor finance. Moneybarn has since grown at a compound annual growth rate of 27% to become a leading player in the market.

  • Customers

    77,000

  • Employees

    320

  • Adjusted profit before tax 1

    £30.9m

  • Loan range

    £4,000–£25,000

  • 1. Certain alternative performance measures (APMs) have been used in this report. See page 237 for an explanation of relevance as well as their definition.

Setting out the blueprint

Our Blueprint brings together why the Group exists as an organisation, framed in the context of the role that our business plays in the lives of our customers. It also sets out the strategic drivers of focus and the key priorities that will drive both competitive advantage and commercial success for the whole Group.

The Group began to embed the Blueprint, to develop its culture through 2019. These strategic drivers are beginning to drive the right behaviours on a daily basis, putting the customer in mind with each decision. Each division has begun to define KPIs to evidence how they have progressed with each of the strategic drivers in the year. This will feed into Group metrics in future, allowing the development to be evidenced and reported.

Business Model

Driven by our purpose

We help to put people on the path to a better everyday life.

Our key relationships

  • Customers

    Our 2.3 million customers are at the heart of what we do; they are the 20% of UK adults who at any one time are looking for something that mainstream lenders do not offer. We specialise in serving their needs and have adapted our business model to do so.

  • Colleagues

    Our 4,900 colleagues are critical to delivering our tailored and understanding business model, balancing the personal touch with the use of technology where customers increasingly want and expect it.

  • Regulators and government

    The nature of our customer base and the market we specialise in makes the building and maintaining of open and trusting dialogue with policy makers and our key regulators (the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA) and Central Bank of Ireland (CBI)) critical to a sustainable business model.

  • Equity and debt investors

    We secure long-term, lower-rate funding through strong relationships with our lending banks, depositors and investors. We generate capital to deploy in growing our business and serving more customers as well as delivering returns to shareholders.

  • Suppliers

    Our suppliers are essential to provide our divisions with the goods and services required to enable us to continue to meet our customers’ needs. They play a vital role in our operations so it is important that we develop strong supplier relationships with them.

  • Communities

    Our community investment strategy is aligned to our social purpose and seeks to invest in activities and initiatives which address the key factors that tend to reduce somebody’s access to credit.

How we create value

We develop tailored products to meet customers’ needs

We focus on the credit market in the UK and ROI, developing simple, transparent products with flexibility to help customers not well served by mainstream lenders manage life.

We attract customers who we can serve

We use many ways to reach consumers including increasingly digital methods, as well as face-to-face and partners such as agents and brokers.

We carefully assess customer affordability and creditworthiness

We use internal and external data, including face-to-face interactions, taking into account both the current situation and the likely future.

We lend responsibly

We tend to lend smaller amounts over shorter periods and take a ‘low and grow’ approach as customers demonstrate suitability and sustainability.

We collect payments due

We offer many ways to pay in cash and remotely, maintaining frequent customer contact. We stay close to customers through call centres, digital communications and face‑to-face meetings in the home.

We manage arrears and customer difficulties

We establish early contact and an ongoing dialogue with customers who have difficulties, with a sympathetic approach, to understand their circumstances and offer forbearance.

Strategic Drivers

Our purpose is built upon a number of strategic drivers. They will help drive our competitive advantage and provide a framework for our decision making, including how we prioritise our investment, set the strategic direction of our Group and operate to keep us true to our purpose and creating conditions for our collective success.

Customer progression Customer progression

Human experiences Human experiences

Head AND heart decisions Head AND heart decisions

Fighting fit Fighting fit

We will build products, services and partnerships that change the game for our customers.

Vanquis Bank

Vanquis Bank credit cards can act as credit builder cards to help customers who are new to credit, or have had a life event, to build, or rebuild, their credit score. An improved credit score can provide access to cheaper borrowing, which can help to put people on a path to a better everyday life. 84% of Vanquis Bank customers felt that their card helped them to improve their credit rating. In 2019, Vanquis Bank began tracking ‘Customer Progression’ across the customer lifecycle, understanding more than 50 customer metrics. As customer progression is key for Vanquis Bank, it has reviewed when fees and charges are applied, and, most significantly, reduced the APRs for around 100,000 customers who, by using a Vanquis Bank credit card, have demonstrated responsible use of credit and therefore can access cheaper credit. In 2020, it plans to continue to deliver lower APRs for many more customers, launch a new loan proposition suitable for its target audience, and develop a proposition for the self-employed. Targets have also been established against over 20 of the customer metrics identified, with a particular focus on credit score improvement, downward re-pricing, and speed of complaint resolution.

Moneybarn

Moneybarn has listened to its customers and responded by increasing its product range. Unsurprisingly its customers did not want to just access credit for cars, but also for commercial vehicles and motorbikes. The commercial vehicles enable sole traders, plumbers, electricians, etc. to access work and support their local economies. In 2020, Moneybarn will develop its offering further in the near-prime space, allowing customers to move more easily up and down the credit spectrum, and develop a customer re-solicitation programme that will support customer access to cheaper credit should their loan end early.

CCD

Home credit traditionally has been based upon cash being lent and repaid on the doorstep. This model is clearly still appropriate for some customers, although others want and need a different service: a service with flexibility over how they apply, how they receive the loan and how they make repayments. In response, management has developed Provident Direct, a hybrid product which is originated in the home, but the collection is digital through CPA. This modernisation improves the customers’ experience by freeing up their time, by no longer requiring routine collection visits, and by removing the necessity of cash by enabling the loan to be repaid online through a bank account. The hybrid product was successfully tested in 2019, and will be rolled out to all customers in the UK in 2020, where there is demand. In 2020, home credit will also roll out electronic card readers, which will enable customers who choose to pay via a collections visit, to have the choice to repay electronically or by using cash. Satsuma, our digital loans platform, will also launch a pilot of a personal loan product with APRs of less than 100% towards the end of 2020. This should enable customer progression to cheaper credit by creating a pathway from one Provident credit product to another.

We will build enduring relationships by delivering experiences that seamlessly integrate the latest technology with our brilliant people.

Vanquis Bank

The internet has and is changing how we do business and interact with our customers. Change, though, only works for our customers if they see it as helpful and provides them with something they need and can use. Therefore Vanquis Bank has formed partnerships with aggregators and affiliates to aid the onboarding process for its customers. By rolling out soft search pre-application for all channels and the pre-approval and pre-population for all affiliate channels, it has made it easier and quicker for customers to apply for a credit card.

Vanquis Bank uses an app, chatbot and SMS to communicate with its customers. Customers can use these innovations if they want, or can interact with Vanquis through the more traditional routes of postal or telecoms. Customers have, though, embraced these new options with over 1 million registered to the app and over 300,000 customers opting for electronic statements, and the chatbot is enhancing the SMS customer response rates.

Moneybarn

Moneybarn has teamed up with the Vanquis Bank through the bank’s app and made car finance available to Vanquis customers. Moneybarn has continued to develop its digital proposition with 200k views through its self-serve Portal and 500k visits to its website.

CCD

In home credit, we build relationships on a weekly basis through the Customer Experience Manager (CEM) collecting repayments from the home on a weekly basis. However, we have voice recordings of all our lending conversations, therefore providing our customers with clear and good conduct outcomes. Satsuma forms an important part of future strategy, particularly as Satsuma and home credit are expected to work more closely together as Provident Direct is rolled out through 2020. This combines face to face origination with digital collections, and in 2020 we will roll out digital card readers. Both of these developments combine human interaction and digital to better serve our customers.

Satsuma is enhancing its onboarding process for its customers by increasing the human decision process in deciding if they can have the credit they are applying for. This enhancement will help to ensure customers get the right credit decision from us, again combining digital and human experiences to provide better outcomes for our customers.

We will deliver for our stakeholders by balancing: (i) data and insight; (ii) financial return and doing the right things; and (iii) customer need and customer want, in order to build a long‑term sustainable business.

Customers need credit to live their everyday lives; try using public transport or shopping online without it. As a company we have to make the decision whether it is appropriate for a customer to have the credit they have applied for or not. We need to use our head and heart to decide whether a person should have credit and, if they get into financial difficulty, how we help them to pay off their debt.

The biggest decision we make is to give credit to someone. We need to get the decision right, and to do this we use strict affordability
and creditworthiness criteria to ensure we do. For Vanquis Bank, Moneybarn, home credit and Satsuma, we only accept 27%, 48%, 45% and 4% respectively of customers who have applied for credit. Of course we do not get all our decisions right, and in those cases we apply forbearance. All these decisions are head and heart, balancing customer need against customer want, whilst challenging our data and insight to ensure we are delivering the right outcome for the customer.

In Vanquis Bank we no longer offer the 69% APR rate for new credit card customers, and Moneybarn has removed the bottom tier of lending within its 48.9% APR. In Vanquis Bank we have also increased the minimum payment due on credit cards and introduced a recommended payment for credit card users. These changes are designed to help customers repay their balances quicker and therefore save them money. We took these decisions as we believed they were the right thing to do for our customers.

Home credit and Satsuma also do not charge any additional fees or charges to their customers. They are told what they need to pay back at the start of the loan, and that does not change. In 2020, the Group will continue to balance head and heart decisions when helping its customers, by putting people on a path to a better everyday life.

We will continually challenge our cost base, efficiency and effectiveness, and change our capability to ensure we remain the most competitive player in the market.

Progress in the year

As part of our Vision for the Future, we have developed a clear set of financial targets to measure our success. The outcome for our shareholders will be sustainable attractive returns.

Returns

Through our clear strategy and complementary, synergistic and industry-leading businesses, we will deliver an attractive investment for shareholders. As communicated at the Capital Markets Day in November, we will target a return on equity of between 20% and 25%. We expect to be delivering an ROE within our target range of 20% to 25% in 2021.

There are two key areas management currently focuses on as part of the Vision for the Future.

Costs culture

We are focused on realising synergies which arise from common processes across the Group. We will target a 500 basis point reduction in the cost income ratio from 43% in 2018 to approximately 38% in 2022. These plans include leveraging:

  • capabilities and best practice in distribution, credit, collections and digital throughout the Group to improve efficiency; and
  • the migration of customers towards their preferred digital application and servicing channels, such as the Vanquis Bank app, to reduce the need for capacity in high-cost human contact centres.

Both the Group synergies and digital options available for our customers will continue to reduce the cost income ratio below 43% in 2020.

Funding efficiencies

The Group refinanced its revolving syndicated bank facility in July 2019 and successfully signed a bilateral securitisation facility with NatWest Markets to fund Moneybarn business flows in January 2020. Together with the ongoing retail deposits programme, this is sufficient to fund contractual debt maturities and projected growth in the non-bank group until mid-2022, when the Group’s syndicated revolving bank facility matures.

The Group is currently exploring a number of potential structures to enable Moneybarn to access Vanquis Bank’s retail deposits capability and the Group is aiming to provide a formal proposal to the PRA in the first quarter of 2020.
The Group also continues to actively consider issuing further senior bonds, private placements and potentially a tier 2 instrument. In addition, the Group is also assessing ways in which to manage the Vanquis Bank balance sheet more efficiently. In respect of funding this would be through diversifying the funding mix into instant access deposits or into wholesale markets through further securitisation. In respect of liquidity, this would be in respect of revisiting the mix of the assets held in the liquid assets buffer rather than solely relying on the Bank of England Reserve Account. The Group aims to make further progress on these areas through 2020.

Financial highlights

Customer numbers

2,319k

bar
  • Customer numbers
2018
  • 2.395k
2019
  • 2.319

Adjusted basic earnings per share 1 p

47.3p

bar
  • Adjusted basic earnings per share
2018
  • 48.7
2019
  • 47.3

Adjusted profit before tax 1 £m

£162.6m

bar
  • Adjusted profit before tax
2018
  • 160.1
2019
  • 162.6

Amounts receivable from customers £m

£2,212.6m

bar
  • Amounts receivable from customers
2018
  • 2.204.0
2019
  • 2.212.6

Basic earnings per share p

33.3p

bar
  • Basic earnings per share
2018
  • 27.3
2019
  • 33.3

Statutory profit before tax £m

£128.8m

bar
  • Statutory profit before tax
2018
  • 97.3
2019
  • 128.8
  1. Certain alternative performance measures (APMs) have been used in this report. See page 237 for an explanation of relevance as well
    as their definition.

Customer Stories

The Vanquis card is giving me lots of opportunities I otherwise would not have had.

I also used a Vanquis loan to buy a car to enable me to find work and take my dogs to shows, which they love!

Jane

The Vanquis credit card gave me financial freedom.

I initially had a low credit rating but the card allowed me to build my credit score and, following regular repayments and the building of trust, I now have a higher credit limit.

Nav

I would have been stuck without my Moneybarn car.

Moneybarn was my last shot as I couldn’t get finance anywhere else. I trust them and would definitely go back. I feel like they are understanding and would try to help with any issues.

Kelly

Moneybarn gave us a chance to get a nice car that ticks all the boxes.

We were declined by other lenders, but the process with Moneybarn was simple and really easy. We would use again and are already looking for our next car!

Adam

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