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Brexit may create some unique growth opportunities for specialty finance businesses as large retail banks turn their focus to high‑margin corporate lending
Dealmaking across the UK consumer credit landscape varies materially. While deal volume in the specialty finance and market place lending space continues to remain high, by contrast, M&A activity in the payday lending space is reserved for the few players who have weathered the Financial Conduct Authority's interest rate caps and enforcement actions.
Credit cards: Activity flat with banks under pressure to move away from riskier business lines
A combination of banks seeking to limit PPI misselling liabilities, pressure to dispose of higher risk credit card businesses (and move to 'white-labelling' models), and financial sponsors being attracted by higher IRR of NPL deals have all weighed on deal activity in the credit card space. A handful of megadeals, like Lloyds' purchase of MBNA, and interest in some credit card portfolios from trade consolidators and private equity, will provide some bright spots, but overall M&A activity is likely to remain steady.
Our 2018 M&A forecast: Credit cards
M&A activity levels will remain steady as banks re-assess consumer credit risks.
Payday lenders: Only those with healthy customer practices will continue to win market share
The imposition of price caps on payday lenders by the Financial Conduct Authority have reduced revenues and pushed up compliance costs. Enhanced consumer protection rights under the Consumer Rights Act 2015 have added an extra layer of risk. This has knocked M&A activity in payday lending, but dealmaking could start recovering, as the herd thins and remaining market participants turn to M&A as a tool for building scale in order to reduce costs and diversify product offerings.
Our 2018 M&A forecast: Payday lenders
M&A activity flat. Market is likely to continue to shrink as a result of regulator intervention. Only businesses with the healthiest consumer practices will survive and thrive.
Specialty finance and marketplace lending: On the deal radars of banks and private equity firms
Specialty and marketplace lenders are expected to remain busy. Banks are actively seeking ways to build partnerships with specialty lenders in order to tap into new customer bases, while financial sponsors have been drawn by fast growth and buy-and-build consolidation opportunities. Compliance with new P2P lending rules and a focus on existing service lines may see some key players step back from dealmaking in the short term. Government support for responsible alternative finance, however, and the niche that specialty lenders are carving out as providers of finance to consumers and SMEs, should bolster deal flow.
Our 2018 M&A forecast: Specialty finance and marketplace lending
High levels of M&A activity. Specialty and marketplace lenders are likely to remain busy as Brexit creates a niche in consumer and SME markets.
Key deals and situations
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