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What is the Personal Loan market size in Australia?
Hello, and thank you for your question about the personal loan market size in Australia. The most helpful sources I found were the Veda Quarterly Consumer Demand Index and the Australian Centre for Financial Studies trends report. In short, I discovered that the personal loan market in Australia is in high demand. However, there is currently trouble for the alternative financial service providers and their ability to stay profitable. The following is a deep dive of my findings.
While I couldn't find a definite number for the total personal loan market size in Australia, I was able to determine that the market size has seen consistent healthy growth since early 2015. Personal loan applications grew 12.4% in December 2016 over the previous December. Also, the Australian Centre for Financial Studies trends report shows that in 2012, small amount credit contracts (SACC) were estimated to have a value between $800M and $1B.
Since traditional lenders have high minimum lending standards, the alternative financial services sector has grown over the last fifteen years. However, the number of independent groups offering alternative financial services has boiled down from 280 over ten years ago, to 30 companies in 2015. Cash Converters has 30% to 50% of the industry's market share.
MARKET SIZE
In 2015 SACCs represented 97.02% of all loans provided. While there has been growth in the demand for SACC loans, conversely, the industry's profitability is stagnant. This is due to rising costs brought on by heavy regulations.
The major banks offer small personal loans that have a one to three year minimum term and start at $3,000 to $5,000. These loans also require heavy credit scrutiny which turns most customers away. Therefore, there is a sustained demand for SACC loans but the industry is going through adjustments in order to stay profitable.
ESTIMATED BREAKDOWN BY MARKET SIZE
With current turbulence in the market due to government scrutiny, finding a solid breakdown by market size of the industry was difficult to pinpoint. One of the more profitable companies in the SACC market was Money3. Looking at a snapshot of their November 2015 report will give an example of the performance of their personal loans tiers.
1. The sub $500 market accounted for 51.3% of their loans.
2. The $501 to $1,000 market accounted for 29% of their loans.
3. The $1,001 to $2,000 market accounted for 9.7% of their loans.
4. The medium amount credit contracts (MACC) market accounted for 5.4% of their loans.
5. The secured market accounted for 4.6% of their loans.
FUTURE TRENDS
The Money3 snapshot was taken just before they exited the SACC market. Money3 decided to leave the short-term unsecured market at end of 2015 due to government scrutiny of the industry. Even with a loan book at $50 million, the company believed the returns from the unsecured loan market didn't justify the regulatory risk and negative public perception. Cash Converters, one of Australia's biggest payday lenders settled a class action suit that dealt with excessive loan fees in 2016. They are currently involved in a suit in Queensland.
While demand for small amount credit contracts is growing, the industry's profits are shrinking. The companies that decide to stay in the market will have to create new profit models to stay healthy. There will also be the headache of heavy regulation and compliance standards.
CONCLUSION
To wrap it up, the personal loan market in Australia is dominated by small amount credit contracts (SACC) which made up 97.02% of all loans in 2015. Currently the market is in turbulence due to heavy regulation and profit margins for alternative financing service providers are dwindling. A review of the surviving companies and how they create their profit models within regulation standards would be interesting to research. Thank you for your request! Please let us know if we can help with anything else.