At a time when technology is king, the demand for face-to-face interaction seems to be on the wane. But Paul Smith understands the human psyche and knows how to adapt to a changing world.
As chief executive of Morses Club, a leading home credit provider, Smith appreciates that some people have written off doorstep loan services. But the success of his firm’s business model and its ambitious plans for the future show that these commentators are wrong, as David Buik, Panmure Gordon’s senior market commentator, and Simon French, our chief economist, discovered during a wide-ranging interview.
Smith explains why home collected credit endures when competition from other lenders is so fierce.
“The predominant reason is that the customers who use home collect credit are very, very difficult to trace and to check with any degree of certainty from a credit-worthiness point of view. That’s because they leave very little footprint. They do not, by and large, have mortgages, they don’t carry credit cards, they don’t carry bank cards, they do not post-pay for their electricity, their gas, their water, their mobile phone usage. They pay for everything pre-pay which of course makes them quite anonymous in terms of the credit reference agencies. So that part of the market really needs somebody to visit them and to check them out and to make sure they are credit-worthy, and that of course they are not getting themselves into financial difficulty by over-stretching themselves.”
With around 200,000 customers, Morses Club is one of the top three home collected credit providers in the UK. When it came to the AIM market back in May 2016, its initial public offering was 108p a share. Since then, its share price has soared by nearly 16 per cent. And it’s done so in very tricky economic conditions.
Part of the reason for that, says Smith, is the firm’s commitment to investing in technology and a drive to make processes within the business slicker and more efficient. And, with no banking licence, Morses Club has made the strategically successful decision to work with regulated companies.
“We have a philosophy in the business of adopting best in class partners in our supply chain and we’ve done that throughout the business. So for our technology we partner with IBM. And we also have a best in class provider for our e-money products…it means we don’t have to be the regulated entity which makes our life and our capital requirements much more streamlined.”
Smith joined Morses Club in October 2014 and has, according to Buik, been very much responsible for growing the company organically and by acquisition. With an in-depth knowledge of mobile payment technology thanks to previous roles, Smith has brought this experience to bear in a new project due for launch soon.
He explains that while the average age of Morses Club’s customers are 45 to 55, the largest growth sector is the 25 to 35 age band. In the last 12 months alone that proportion of customers has grown by 20 per cent. And, it is this group that wants to interact with organisations using mobile phone technology and online platforms.
Smith says: “By the end of this financial year, we will be launching a new brand powered by Morses Club which will be an online brand that will appeal to a generation of customers that are not home collect credit customers but, that do have a slightly impaired credit history. But I stress that this is a very different segment of the community to home collect credit customers. These are people who have a substantial financial footprint. So they are mortgage holders, they have post-pay contracts with gas, electricity, mobile phone companies, and they are therefore very referenceable…our aspiration in the first year is to go up to 20,000 customers with that new product.”
Nevertheless, the company will retain the face-to-face relationship between the agent and the customer. And it has plans to further consolidate its business.
“It’s a very fragmented market so there are still just short of 400 individual home collect credit businesses in the UK,” says Smith. “Three organisations have a massive amount of market share, being Provident, ourselves and Loans at Home 4U. So there is an opportunity to purchase some of the tail-end players. In the last 18 months we have acquired 17 businesses for a total of £18 million and we are acquisitive still. We still have a healthy pipeline of opportunities. We’re in negotiation with several organisations and we will continue to make acquisitions.
“We see ourselves as a consolidator. We already have 100 branch offices across the UK and that gives us full penetration of the whole country. But we do continue to add books into existing areas where we find the opportunity as the market consolidates.”
Looking to the future
Looking to the future, Smith believes the biggest challenge to Morses Club will be keeping sobriety in the business.
“It would be very easy to nail ourselves to an overly-ambitious growth number because we have so many fronts across which we can grow the business…that then has the effect of increasing our impairment and our bad debt write-off. So I think it’s keeping a steady hand on the tiller, growing in a conservative manner and not getting too carried away and looking to snap up too many opportunities too quickly.”