The financially under-served population is becoming too large to ignore
The overlooked and financially under-served market consists of those who may have difficulty accessing credit from mainstream lenders. The last time a concerted effort was made to size the population was in 2016. Since then factors such as the pandemic and rising cost of living have put a strain on people’s financial health.
The financial services industry and regulators need a current and accurate picture of the size of this segment so that appropriate solutions and support can be provided.
PwC and TotallyMoney have conducted this research to size the under-served population, how it has grown since 2016, and the drivers for this change. With the insights from this report, the industry and regulators can start to develop a way forward and explore the steps that need to be taken to change credit for the better, for everyone.
20.2m adults in the UK are now defined as financially under-served
Our findings indicate that at least 1 in 3 adults may have difficulty accessing credit from mainstream lenders. This represents a 50% increase in the size of this population since 2016.
Overall, more adults now meet each definition of being under-served – either exhibiting an under-served characteristic, holding a near prime credit card or perceiving themselves to be under-served.
On average, the under-served population tends to be younger and typically has a lower gross personal income and lower savings to call upon. They are more likely to feel out of financial control or to have seen a deterioration in what they can afford.
An additional 8.9m adults exhibit signs of financial fragility. These people are among the most at risk of becoming under-served in the near future as a result of a further squeeze on their finances as the cost of living crisis continues. They are more likely to use their overdraft for everyday essentials (e.g. groceries, bills), to have had their income negatively impacted by the pandemic or to struggle making repayments on their borrowing in the next year.
If we include this population, 1 in 2 adults are either under-served and/or show signs of financial fragility.
“This paper can help the industry and regulators explore the steps that need to be taken to change credit for the better, for everyone.”
Simon Westcott, Strategy& UK Financial Services Lead at PwC UK
Understanding what is driving this growth will help find a way forward
- Lasting impact of the pandemic
- Increasing cost of living
- Growing segment with thin credit files or no credit history
Lasting impact of the pandemic
11 million adults – or 1 in 5 adults – have had their personal income impacted by the pandemic and do not expect it to recover in the next two years. As an immediate result of the pandemic, household savings rose and outstanding balances of unsecured debt fell. However, this picture at the aggregate level masks the fact that some households have had to run down savings and increased their debt levels since the start of the pandemic.
Increasing cost of living
Around three-quarters of adults in the UK are worried about the rising cost of living and 43% have already had to adjust their budget as a result. Rising prices could mean that the average household would have to pay an extra £2,500 in 2022/23 to buy the same goods and services as in 2021/23.
Growing segment with thin credit files or no credit history
Our survey indicates that there has been a 29% increase in the number of people with no credit history in the last six years. Today, there are approximately 11m adults in the UK who do not hold a credit card and would not consider using one in the future. This is more prevalent among young adults.
Having grown by around 50% in the last six years, and with further growth likely due to the cost of living crisis, the financially under-served population is becoming too large to ignore.
With at least 1 in 3 adults in the UK now defined as under-served, the consumer credit market must focus on designing credit products which meet the needs of this segment and provide them with a range of credit options.
Given the size and growth of this segment, actions to address the population will need to be taken quickly to avoid more people facing challenging financial circumstances.
About the research
Given the characteristics of this segment, there is no definitive, publicly available data to size it. As a result:
- We ran a bespoke customer survey of >2,000 UK adults with YouGov in February 2022. The survey provides a statistically significant representation of the UK population, at greater than a 95% confidence level. To be defined as “financially under-served”, respondents needed to meet some basic eligibility criteria (to screen out those who are unable to borrow e.g. deep subprime or unbanked) and at least one of three definitions:
- Meet at least one under-served characteristic (e.g. have a thin credit file / minor adverse credit history) and/or
- Hold a near prime credit card (e.g. cards with a higher APR / focus on building credit score) and/or
- Perceive themselves to be under-served (e.g. think they would struggle to access credit)
- To calculate the overall size of the population, a set of mutually exclusive groups was developed based on their survey responses. The results were then extrapolated to the total UK population. The questions posed are a continuation from a PwC survey conducted in 2016, enabling an estimate for how this population has changed in size.
- Once we had isolated the under-served population from the remaining respondents, we then sought to identify those who are “financially fragile”. We defined as respondents who did not meet the financially under-served criteria, but did exhibit at least one indicator of fragility, e.g. they would need to borrow to make an unexpected payment of £300 in next 12 months.
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