Provident set to launch internet savings division

The Bradford-based lender said it will open the savings business later this year.

It will probably operate under the group’s Vanquis Bank name, which is currently being used solely as a credit card business.

The move will diversify the group’s funding base and pave the way for future expansion.

Provident has been in talks with the Financial Services Authority for a number of months in an attempt to use its banking licence to take retail deposits.

In a trading update for the first four months of 2011, it said it has agreed capital requirements with the FSA and hopes to launch the savings arm in the next few months.

Provident’s chief executive Peter Crook said: “We expect to start taking retail deposits in the late summer, early autumn. The customers we target will be a different proposition to our credit card customers.

“We will target people with a decent-sized sum of money in savings accounts, typically up to £85,000,” he said, referring to the Government guarantee to protect up to £85,000 of personal savings should a bank or building society go bust.

He added that the savings rates will be very competitive and the group aims to be in the ‘Best Buy’ tables in the weekend newspapers.

The name is yet to be finalised, but is almost certain to include the Vanquis Bank name, the name on the banking licence.

Mr Crook hopes that once the savings operation is up and running it will replace funding currently provided by Provident Financial PLC.

This cash is borrowed from wholesale banks and private placements.

Yesterday Provident reported a strong start to 2011.

Chairman John van Kuffeler said: “We have started 2011 well. Asset quality is under tight control as evidenced by the sound collections performance of the home credit business through the first four months of the year and the record low delinquency levels at Vanquis Bank.

“The group is on track to deliver good quality growth for 2011.”

Danielle James, analyst at Shore Capital Stockbrokers, said: “The update was encouraging on all fronts, with both divisions said to be performing in-line with, or ahead of, internal targets. Based on the statement we believe the group is performing strongly despite the impact of inflation on customer incomes.”

Provident said it will open a new call centre for its Vanquis Bank operation in Bradford, which will create up to 250 new jobs over the course of the next few years.

The new call centre will be based at the group’s Thornton Road head office, where it already employs 750 people, and is due to open later this year.

Mr Crook said Bradford was the natural home for the new call centre as it has a ready-made infrastructure and an excellent labour pool.

The decision to open a second call centre was made after Vanquis Bank grew too big to be accommodated at the initial call centre in Kent.

Provident said that a number of options had been looked at to secure additional operating capacity to accommodate the growth of Vanquis Bank from early 2012.

Mr Crook said that Vanquis Bank has grown strongly through the first part of the year.

“We address an attractive segment of the market,” he said. “Customers are in regular employment, they earn between £15,000 and £30,000 a year and live in rented accommodation or social housing so they haven’t got a mortgage. It’s a nice audience to address – they’re not indebted.”

In the home credit business he said conditions are still relatively tough.

“Customers are seeing a continued pressure on disposable incomes. It’s steady at the moment – it’s not getting any worse and its not getting any better.”

With the rise in inflation doorstep agents are being careful how much they lend to customers so they don’t over-reach themselves.

That said, Mr Crook added the group has seen “a good start, a strong start” to the year.

“It’s all about collection in the first four months of the year after Christmas, people don’t really borrow and we’ve collected well in the first four months.”

He envisages a long, slow haul back to economic growth.

“I think we’ll see a very slow recovery this year.”

Talking about the home credit business, he said the improvement in impairment rates seen during the second half of 2010 has been maintained.

Year on year customer numbers were flat during the first quarter of 2011, reflecting the decision taken last year to place greater emphasis on serving good quality existing customers rather than taking on new ones.

Lending with a personal touch

Provident Financial was founded in 1880 to provide small cash loans to people on low incomes.

It now provides small, unsecured loans, typically for sums of between £100 and £500.

Customers use home credit for a variety of purposes, from special events such as Christmas or holidays to coping with an unexpected bill.

Loans are delivered to the customer’s home by an agent of the company who then calls every week to collect the repayments.

Provident’s home credit businesses have over 11,700 agents in the UK, most of whom (71 per cent) are women.

Agents are paid commission based on what they collect, not what they lend, so it is in their interest to lend only as much as customers can afford to repay.

The company specialises in lending to people who are unable to borrow from high street banks and have little or no credit history.