The name of Non-Standard Finance (NSF) suggests a market disrupter. Quite the opposite: NSF's growth strategy is to acquire traditional branch-based and doorstep lending businesses and then grow them in a traditional manner, that is by hiring agents and opening branches. Its acquisition of Everyday Loans Group from Secure Trust Bank (STB) for £107m in cash and £20m in NSF shares certainly fits into this pattern.
The Neil Woodford-backed newcomer will invest in opening more outlets for ELG's unsecured lending business. The "non-standard" element of the name of course refers to the credit quality of the customer base: people with potted credit histories who are avoided by mainstream banks. By lifting the average annual percentage rate from the 100 per cent imposed by Secure Trust, NSF hopes to hoover up customers that the bank had decided were too risky. "We are absolutely sure that we can grow this business faster than was the case under Secure Trust's ownership," says NSF's executive chairman, John van Kuffeler.
The lower end of the market has, of course, come in for considerable regulatory scrutiny. "There will be that political and regulatory pressure on them, but everything comes at a price," says James Ash, equity analyst at Canaccord Genuity. While chasing the higher rates that pay for a higher likelihood of impairments, NSF management argues its in-depth credit profiling - which it says can only be achieved through a sit-down meeting - fits with the Financial Conduct Authority's emphasis on understanding individual circumstances.
Back in July, Non-Standard Finance acquired Loansathome4u, the home credit business of S&U (SUS). It has since managed to increase customers gained per week at that business from below 200, on a gross basis, in August to a high of 1,183 in one week in November (see graph). The summer is usually quieter, but not that much. This has been achieved very simply by recruiting local agents and increasing collection rounds.
The main competitor here is Provident Financial (PFG), a business that has progressively focused on its faster-growing sub-prime credit card product. In 2011, Provident had 10,500 local agents and 1.8m customers. By 2014, it had 7,700 agents and 1.1m customers. NSF is doing its best to hoover up the scraps, and expects to acquire smaller players as it looks to further expand its market share.
