We help to put people on the path to a better everyday life.
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.
We will build products, services and partnerships that change the game for our customers.
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 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.
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.
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 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.
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.
Head AND heart decisions
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.
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.
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.
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.
Our KPIs are helpful in assessing progress but are not exhaustive as management also takes account of a wide range of other measures in assessing performance.