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23901401475105Evaluation of Scotcash operation within ng Homes Jan 2016 – Dec 2018 A report for the board of ng HomesAugust 2019 00Evaluation of Scotcash operation within ng Homes Jan 2016 – Dec 2018 A report for the board of ng HomesAugust 2019 5014259531906SummaryScotcash (within ng Homes) opened in Springburn in Oct. 2011. In its first 2 years (2012 & 2013) over 600 loans were issued in small sums totalling over ?300,000369 ng Homes tenants borrowed in 2017/18, (212 at Springburn). In 2012/13, the first 2 yrs., 240 used the branch.In the 3 years covering 2016 to 2018 G21/G22 residents took out over 1,500 loans. Most loans were issued in a branch, but trend is shifting to online. In the 3 years covering 2016 to 2018 G21/G22 residents borrowed ?0.83m (2016/18). New loans at ?300avg & ?660avg repeat. c?270,000 was saved in interest not paid on the doorstep.G21/G22 defaults are lower than Scotcash generally. There are differences between the branch and online customer. Branch customer more likely to be benefit dependent.Scotcash is growing quickly & moving from branch to online (80:20 to 30:70 ratio in past 3 yrs.). Demand for unsecured credit is still very high. Supply exists, but increasingly those in lowest incomes are even squeezed from commercial high cost credit. G21/G22 residents are late adopters to borrowing online. Branch lending is still an important option for them. It is highly valued. 00SummaryScotcash (within ng Homes) opened in Springburn in Oct. 2011. In its first 2 years (2012 & 2013) over 600 loans were issued in small sums totalling over ?300,000369 ng Homes tenants borrowed in 2017/18, (212 at Springburn). In 2012/13, the first 2 yrs., 240 used the branch.In the 3 years covering 2016 to 2018 G21/G22 residents took out over 1,500 loans. Most loans were issued in a branch, but trend is shifting to online. In the 3 years covering 2016 to 2018 G21/G22 residents borrowed ?0.83m (2016/18). New loans at ?300avg & ?660avg repeat. c?270,000 was saved in interest not paid on the doorstep.G21/G22 defaults are lower than Scotcash generally. There are differences between the branch and online customer. Branch customer more likely to be benefit dependent.Scotcash is growing quickly & moving from branch to online (80:20 to 30:70 ratio in past 3 yrs.). Demand for unsecured credit is still very high. Supply exists, but increasingly those in lowest incomes are even squeezed from commercial high cost credit. G21/G22 residents are late adopters to borrowing online. Branch lending is still an important option for them. It is highly valued. Evaluation of Scotcash within ng Homes in North Glasgow (Jan 2016 to Dec 2018) IntroductionThis report reflects on the three full years of Scotcash lending from the offices of ng Homes in Springburn. It covers lending undertaken from 1st January 2016 to 31 December 2018 inclusive. Occasionally the data for the five full months to 31 May 2019 is used to determine patterns for future forecasting, where this data is used it is clearly specified. The raw data was supplied by Scotcash. A small number of customers were also interviewed about their experience of borrowing money from Scotcash.This report confirms there has been a significant shift in the way Scotcash lends money, deliberately moving from face to face lending to online lending. This planned change in the period evaluated (2016-2018) saw a change in ratios from 22% of loans issued online in 2016, to 70% issued online in 2018. The move online has also led to a huge uplift in loan volume which has risen by 60%. Scotcash is now a national lender with the percentage of loans issued to G-only postcodes dropping from 93% in 2016 to 55% in 2019. Residents of G21 and G22 however, have been slower to make the shift to online lending as their preferred channel for borrowing money. They could be said to be “late adopters”. The residents of G21 and G22 display a preference for face to face, relationship-based lending. Scotcash offers affordable credit, and additional wraparound or gateway services to customers who are largely ignored and unwanted by mainstream (or standard finance). If a loan isn’t appropriate, then it isn’t issued. If alternatives are available, they’ll be offered. The customer is generally unable to access cash elsewhere due to poor or thin credit files, or because the amount they seek to borrow is too low for standard lenders to offer. Banks, for example, wouldn’t lend ?500 as a personal loan, they’d see that as an overdraft or credit card facility. Scotcash has operated in Glasgow from its High Street premises since January 2007. Licenced by the Financial Conduct Authority (FCA) it advances small loans to low income households, predominantly women (70%) with children (55%), often living in lone parent households (43%), within social housing accommodation and on a low income. The customer profile has been consistent since Scotcash opened. This analysis confirms this consistent demographic. For borrowers, these small loans meet both unexpected, and expected expenditure, ranging from replacement of damaged white goods to helping meet Christmas outlays. Without access to Scotcash the customer would have few alternatives, as evidence suggests even the high cost alternatives are increasingly unavailable to them. Scotcash lending in context with commercial high cost credit There has been a significant drop off in commercial high cost short term credit (HCSTC) sometimes referred to as payday loans from a market peak of ?1.5bn around 2012 and 2013 to a low of ?483m in 2015, lifting slightly to ?583m in 2016. The reduction in HCSTC volume has been concurrent with a change in the income of the HCSTC borrower. In 2012 the median net household income of a payday loan borrower was ?15,600, by 2016 this figure had risen to ?20,000. In short, Scotcash borrowers will find it increasingly difficult to access any form of HCSTC loan.Over this same period, wages were stagnant, benefits were frozen or reduced, the payday companies were, (and still are) closing the door to lowest income borrowers. It is perhaps no surprise that in the same period Step Change in Scotland noted that the defaulting of rent, utility bills and particularly council tax had risen markedly. Step Change in Scotland reported 18% of clients eligible to pay council tax were in arrears in 2010, by 2018 this had risen to 46%. Without alternatives, people are defaulting to find the money they need; a short-term fix, leading to longer term difficulties. When Scotcash launched their services from ng Homes, home collected credit was significantly larger than now. The leading provider of home credit, Provident Financial, Group (PFG) would have been lending to many more ng Homes tenants than they do now. In 2012 Provident reported around 1.8m borrowers on the doorstep, by 2018 that figure was under 500,000. The leading Rent to Own lender “BrightHouse” is also shedding customers and facing intense scrutiny around their business model. Whichever form of high cost credit is examined the answer is similar, fewer people are securing credit, and those that do are on (relatively) higher incomes. Scotcash is an excellent example of responsible lending, where the needs of the borrower align with the motivations of the lender. If a loan is not appropriate Scotcash will work with the customer to find a solution which might include warm handover to embedded CAB staff, opening a basic bank account, a linked credit union savings account, fuel poverty advice and support, or information on budgeting, financial management and capability. Scotcash has received many awards for outstanding work including Credit Today’s Responsible Lender of the Year in 2018. ng Homes historic engagement with Scotcash As an entity, ng Homes became a full member of Scotcash in 2013, alongside existing members Glasgow City Council (GCC), Glasgow Housing Association (GHA) and Royal Bank of Scotland (RBS). They have a Director permanently on the Scotcash board. In October 2011 ng Homes supported the establishment of a Scotcash loans service located within their offices. They supported the branch by meeting running and some operational costs. ng Homes saw this as an additional service to meet the needs of their tenants, they recognised that tenants of other landlords would also benefit too. The intention was to provide an alternative to higher cost home collected credit, rent-to-own (RTO) payday, and illegal moneylending as well as local access to the other Scotcash services for ng Homes and other North Glasgow residents within G21 and G22 postcodes. The North Glasgow Scotcash office is open within the ng Homes Springburn office two days per week, having reduced these opening hours in 2019 from five days as a result of a greater channel shift within the business to online rather than relationship-based, face to face lending. Previous evaluations of Scotcash lending within ng Homes highlighted the value placed on the service by G21 and G22 residents, and particularly ng Homes residents. In interviews all respondents noted the ng Homes newsletter as a source of information, seeing Scotcash highlighted in the newsletter was an application trigger. An evaluation of the first two year of business from North Glasgow in 2013 covering the period from Nov. 2011 to Oct. 2012 reported then that Scotcash (within ng Homes) had received over 1,000 applications, approving 305 loans to a value of ?153,735. In the first year of operation, of the 305 loans, 150 were to first-time customers. Almost two in every five loans (39%) were issued to ng Homes residents; three out of every four (72%) were to people residing in G21 and G22 postcodes. In the second year of operation, (Nov. 2012 to Oct. 2013) a similar pattern was evident. Over 1,000 applications for loans with 294 loans approved (100 new and 194 repeat) to a value of ?144,228. Of the loans issued in the second year, two in five (41%) were still issued to ng Homes residents, with two in three (66%) issued to residents in G21 and G22 postcodes. The pattern was very similar to year 1. Analysis of loans issued 2016 to 2018 In this evaluation of the three-year period covering calendar years 2016, 2017 and 2018 the numbers of borrowers from G21 and G22 postcodes, and the number of ng Homes tenants borrowing has risen overall, but crucially, this now includes a significant number of residents borrowing either online or at another branch not just the branch located within ng Homes. The percentages of G21/G22 residents borrowing from the ng Homes’ branch is largely unchanged. The volume of lending from the branch peaked in 2016 and by 2018, in line with wider Scotcash developments is increasingly shifting online. The G21/G22 borrower, and specifically the ng Homes tenant is a slow adopter to online. YearTotal Borrowers from ng Homes branch Amount borrowedPercentage (& No.) of borrowers from G21/G22Percentage (& No.) of borrowers who are ng Homes tenants Additional G21/G22 borrowers (other channels) Additional ng Homes tenants (other channels) 2012305?154,00072% (220ppl)39% (119ppl)n/an/a2013294?144,00066% (194ppl)41% (121ppl)n/an/a2016376?206,00074% (278ppl)33% (124ppl)250ppl62ppl2017323?189,00080% (258ppl)36% (116ppl)254ppl81ppl2018235?156,00076% (179ppl)41% (96ppl)331ppl75pplScotcash now has more ways for people to borrow. They have not changed their values in terms of who they look to lend money to - the demographic of borrowers is as consistent now as it was when they opened in 2007 or when they opened the ng Homes branch in 2011. Chart 1 (below) indicates the range of ways people from G21/G22 access Scotcash loans. (Note: face-to-face (f2f) does not mean the borrower presented at the ng Homes branch, just that they presented at one of the branches). The average new (or first) loan issued was c?300 (for comparison purposes this is a lower amount than the average issued in 2013 when it was ?365); the average repeat loan was c?660 (for comparison in 2013 it was ?669). New loans issued face to face have seen the most significant drop off, just 18 new loans were issued in this way in 2018, a further 79 new loans were issued to G21/G22 residents online. New loan averages are lower than five years ago, perhaps reflective of the wider macro-economic situation for people living in low income households with pressures from benefit freezes, underemployment and the gig economy and wage constraints, and the impact of the roll out of Universal Credit. Acting responsibly, Scotcash only advances an amount that meets their affordability criteria, not on what the customer might ask for.Chart 2 compares the number of actual ng Homes tenants receiving a loan (compared to 2012/13). Significantly more ng Homes tenants are being advanced funds, just not always in the ng Homes branch. The Scotcash method of lending money has changed dramatically, as Charts 3 and 4 show. The shift from face to face lending to online lending (see Chart 3) has seen 22 in 100 people borrowing online in 2016 rising to 70 in 100 people borrowing online in 2018. As already stated, this is part of a planned business shift, but comes with challenges, notably around controlling bad debt associated with both the channel and the number of new loans issued to grow the business. In short, new loans are riskier than repeat loans, and online is riskier than face to face lending. Chart 4 reveals that G21 and G22 borrowers are slower to embrace online borrowing; They still prefer branch-based borrowing. To illustrate this, compare the figure of 42.5% and 57.5% (in chart 4) with 70.2% and 29.8% (in chart 3). Scotcash loan volume growth is highly significant and is indicative of a clear desire to advance loans to more people (the channel shift to online) and to expand beyond a Glasgow / G postcode. Since 2016, Scotcash grew significantly with a 59.58% increase in volume and 41.42% in loan values. Within G21/G22 the growth in loan volume and loan value has remained largely unchanged. (see chart 5).The Scotcash growth is driven through online loans and outside the G-postcode base which was the major lending area for the first ten years of Scotcash lending. In 2016, 93% of loans were issued to G-postcodes, by 2019 this has dropped to 55%. (not shown in Chart 6 as it only covers the period January to May 2019) Within the Glasgow context, loans to G21/G22 residents have shown a small drop, but statistically relatively static, at c16% of all G-postcode loans. Online loans are generally considered by lenders to be a higher risk than those issued face to face. They are less “sticky” usually than face to face issued loans. It is not a surprise to see the markedly higher write off from online lending, that’s what other lenders find. The customer is unknown and unseen and the decision making is less about “relationships” and has a more “transactional” feel with fewer manual interactions. The processing ought to be quicker, the volumes higher, the experience frictionless for the customer, not driven by a relationship which face to face lending develops and has been successfully operated in the first ten years by Scotcash, with correspondingly low bad debt over that period as a result. The shift to online brings some added risk; attracting new customers outside G-postcodes could also lead to higher write off, again this is not a surprise, as new loans are always riskier than repeat customers. It is noteworthy however that online lending issued to G21/G22 residents, like face to face lending across G21/G22, is quite clearly lower risk to the Scotcash book. Face to face lending to G21/G22 residents is lower risk when compared to all loans issued face to face by around 2 percentage points. Online loans issued to G21/G22 is significantly lower risk by around 6 percentage points when compared to all online loans issued. It looks like the further away from Glasgow the greater the loan risk becomes. The reason for higher bad debt across the whole book, or conversely lower bad debt among the G21/G22 book is explained in Chart 8. This shows that “new” loans represent c45% of all loans issued by Scotcash, (the blue within the four columns on the left) whilst in G21 & G22 new loans now account for around 23% of all loans issued (the orange portion of the four columns on the right). Regular borrowers are less risky regardless of the channel they choose. The non-G postcodes represent a smaller part of the whole Scotcash book, but a proportionately larger part of the defaults. Charts 9 and 10 show that in 2018 64% of the loans were issued from G postcodes, but not 64% of write off. 58% of write off came from around one third (36%) of lending that was issued outside G postcodes.The overall profile of the customer has not changed much despite the changes in other part of the business. The percentage of lone parents, whether using branch or online for example, approved for loans from G21/G22, is almost the same as the percentage of lone parents approved from all other postcodes. In 2016 the percentage of lone parents from G21/G22 accessing Scotcash was 43%, (made up of 35.2% face to face, and 7.8% online) in 2017 the percentage was 42.4% (made up of 34.4% face to face and 8% online) and in 2018 the percentage was 40.3% (21.9% face to face and 18.4% online). The percentage of lone parents across all Scotland’s households is 5.2%. Scotcash therefore sees 8x the national average of lone parents. This is a remarkable achievement with significant benefits in addressing child poverty.The customer using Scotcash is a person on a below average income, exhibiting characteristics that would identify them as facing disadvantages, such as being reliant on benefits, or working in low paid or precarious employment, or a lone parent with dependent children or social housing tenant or a combination of these elements. The characteristics of borrowers online has one significant difference from the borrowers in branch, evident in charts 14 and 15. One in two online borrowers will be working, with one in two not working. In branch the figures are one in four borrowers will be working, and three in four not working. There are multiple reasons why lowest income households, most often those on benefits, actively prefer, when presented with a choice, to borrow face to face. This can include a need to explain their credit score or file or their reasons for borrowing, there can also be a reluctance to borrow online as they might feel uncomfortable applying online or lack the technology or confidence to do so. The interviews, whilst numerically small, and not statistically valid, asserted similar views. Borrowers were reluctant to use online services preferring the convenience and friendliness of the branch. Specific mention (consistent with previous evaluations) referenced the individual loans officer and the manner displayed by her that put them at ease. One borrower said that if online was her only option it would mean she would not use the service as she was tech-phobic and would need her son’s assistance, and she declared she didn’t want him to know her business. Another, who expressed a clear preference for face to face said she would still use the service if it was online only. The following quotes reflected these conversations:“I feel you can talk to someone face to face rather than online. “If it was online only – Id have reservations, family would know my business”“No, I’m not one for technology. Absolutely not – I’d rather see a human, human contact, you don’t feel like you’re another number…I wouldn’t bother with them if they were online”. “I get to explain my situation more, than online, if I’m on the phone I tend to go ‘ah yes’, if I am face to face I can ask and say ‘I’m not sure, can you explain’, online doesn’t allow that”“If I couldn’t get an appt in branch, then I’d be quite happy online” “I’m just no very good with computers, so I’d rather phone them and set up the meeting…too scared of computers, round about my age group, I don’t like doing anything online….if it was my only option I’d need to learn, so, yes, I’d still use them” There are other differences between online and branch customers, the distinctions are across the board the characteristics that are evident in G21/G22 mirror the characteristics from all lending. The significance is that the differences are between online and branch customers. In addition to the characteristics shown in the two charts (16 & 17) the branch customer will be an older woman, average age 45, the age online will be nine years younger at 36, but also predominantly female. Scotcash remains a business that lends mostly to women. Single adults seem the most averse to online borrowing. People continue to borrow for the same reasons they did from day one of Scotcash opening in 2007; Christmas, Home improvements (HIMPS) holidays and other special events. The amounts are modest, with average loans being ?563 in 2018 across G21/G22 borrowers. GHA and ng Homes dominate the tenure of the borrowers. They are the largest two landlords by some margin but there does not appear to be any significant movement in new borrowers from any other local housing association. Reflecting on the earlier evaluation of ng Homes. Borrowers who were also ng Homes tenants were praiseworthy of ng Homes offering this service and advertising it. In the period analysed Scotcash loans cost around ?40 in interest and fees for every ?100 borrowed over 52 weeks. The Provident Financial home collected credit alternative would cost in the period analysed ?87 per ?100 borrowed over 52 weeks. It’s an inexact science to read across loans, but the Scotcash loan would represent a “saving” of ?47 for every ?100 issued. Broadly, Scotcash borrowers in the period 2016 to 2018 would have saved in the order of ?290,000 to ?390,000 in interest that could otherwise have been paid to home credit lenders. Of course, it’s possible that some borrowers would not have selected that route for their borrowing, or may have gone without, but likely a significant proportion would have utilised home credit. Customers did not think the service was expensive. They valued the service highly. “Don’t really have any other options, bank loan not going to happen. Provident interest too high. Rather avoid BrightHouse for interest. Scotcash isn’t expensive, fair in relation to others”. “Really helps me out where, if I need to pay for holiday or I need something quickly…Its sort of peace of mind, you’ve no got it, but you know you might be able to get it”“Scotcash – the people are very friendly, humanity, approachable, they treat you like a human being. I find them all right – they’re flexible enough, I’m happy enough. They give you the option they work around you, rather than you working around them”“It eases me mind knowing that I can access credit occasionally – there’s a friendly voice and a human face, a backup for an emergency”“Interest is much better rather than someone coming to door…If I needed flexibility, I could get it. I think it’s good they go out of their way for you”.Customers consider Scotcash loans a value proposition, in face to face interviews with six borrowers they reported their positive experiences and the impact on their lives. “I pay fortnightly, I love how they can take it that a time that suits me, it’s coming off your money, your getting into a routine. You don’t feel like you are being judged. I would recommend them, others are no prepared to come and go with you, but Scotcash are.”“If you’re on a low income you need to start somewhere. I would say there a good thing. An asset…I think it’s fantastic that ng homes can do it, there’s money clubs and things like that (offered by ng Homes). it stops folk going to outside lenders”“I’m over the moon with the service – they gave me a lifeline”. “Fantastic reliable service for families that don’t have other options – it gave me a little independence and knowing it has given me a footprint into the system. Good debt.” One customer raised an issue of the administration fee, saying it ought to be a flat fee and not a percentage of the loan value, but otherwise there was satisfaction with their borrowing experience. All interviewees said they would, and did, recommend Scotcash to friends and family. Customers valued the role of ng Homes in bringing Scotcash to Springburn, they all knew that it was a ng Homes initiative. A number said they saw leaflets or information in newsletters that alerted them originally to the service. There continues to be no evidence that the location of Scotcash within ng Homes offices has been detrimental to loan numbers or default rates – quite the opposite. Nor is there any reputational risk to either ng Homes or Scotcash. Customers recognise that Scotcash is a separate, independent operation, and valued the intervention of ng Homes in supporting it. The characteristics of the customer using the services of Scotcash in North Glasgow are as consistent as they have ever been. There is a chance that this could shift if the service is predominantly online (as already seen fewer benefit dependent borrowers apply online and almost no people of retirement age). The Scotcash CEO is alert to the concerns of mission drift, (another social lender that has moved almost wholly online has seen their lone parent percentage drop by half to 16% of loans.) Scotcash are focussed on delivering a service that, whilst predominantly online recognise the needs of a significant minority for relationship-based lending. The holistic nature of the service remains of utmost importance to Scotcash and ng Homes. Declines are treated empathetically; signposted to debt and money advice or other support services. Scotcash are developing pathways to offer such support for online declines but a personal relationship is clearly helpful. Customer reaction to the services offered has been positive. Individuals interviewed about their experience reflect on the annual stresses within their lives of meeting their real and perceived obligations around Christmas, birthdays, school holidays and significant life events. They comment on the reduction of stress as a result of a successful Scotcash outcome. There are associated benefits of reductions in mental health, improved well-being, and satisfaction from the ability to provide gifts for dependents, a freshened-up bedroom or living room, or a week’s break. There are benefits to wider society in the reduced social stigmatisation from an ability to fully participate in wider society.CONCLUSIONThe continued presence of the Scotcash office at ng Homes is a valuable community resource. Whilst much of the world has changed to online purchases and managing finances via apps and tablets there is a group for whom a personal face to face service remains important, even vital. Their phones don’t have the data capability, they are not tech-savvy, they rely on family members to assist them browse online and they are reluctant (for now) to embrace online borrowing. In the absence of any alternatives it is likely that the borrower with a relationship with Scotcash would see value in making the effort to convert to online, however, new borrowers may suffer through the unknown element of loan approval, “will the effort be worth it?” A continued presence of personal face to face lending in Springburn is important to meet the borrowing needs of G21 and G22 residents. The investment by ng Homes in Scotcash continues to provide cash benefits to their own and other North Glasgow residents and a number of associated benefits in terms of social capital, physical and mental health and goodwill. It is responsible lending to only advance what people can afford, not what they seek and the continued vigilance of Scotcash to only advance what is affordable and within the budget of individuals is to their credit.As the wider commercial credit market is constrained, with new pressures on guarantor lending and the potential removal of rent to own from the market as a result of FCA rate caps, there will continue to be a demand for small sum, affordable credit.Recent development within Scotcash to offer an end-to-end online service alongside plans to raise their marketing and branding appeal will continue to raise the profile and consequently the number of loan applications. Continued support from ng Homes will provide substantial physical, social and financial benefits for North Glasgow residents. The branch remains an important feature for G21 and G22 communities. The continued presence of the branch within ng Homes will be beneficial to address financial exclusion. ____________________________________________________________________________niall@07799 875864August 2019 ................
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