Evaluation Scotland Wales
The UK Strategy for Financial Wellbeing is taking forward the work of the Financial Capability Strategy Opens in a new window


A review of change & innovation in unsecured credit market

Evidence type: Review i


The UK unsecured credit market has evolved in its modern form since the late 1950s to become an integral part of how most consumers live their financial lives; most will at some point rely on a credit card, loan or overdraft. More recently, there has been a marked shift in innovation including the rise of payday lenders, unregulated buy now pay later (BNPL) products and advances to employees. Regulation has reshaped the market since the FCA took on responsibility for it, and coronavirus has posed significant challenges in terms of both protecting consumers and the viability of business models. The review was undertaken in order examine innovations in the unsecured credit market and ask whether more needs to be done to ensure a healthy, sustainable market.

The study

This report was commissioned by the FCA Board. The review comprised a literature review, 3 virtual roundtables, attended by 68 people, 64 written submissions to a Call for Input, and 22 individual interviews. It can be assumed that these contributions came from advisors in a professional capacity. It also included 8 focus groups and 6 in-depth interviews with over 40 consumers from across the UK.

The specific goals of the review were as follows

  • To examine the current state of the unsecured credit market in the UK
  • To examine changes in regulation, noting those areas that have been subject to regulatory oversight in recent years and comparing likely harms or dynamic effects seen in those areas.
  • To examine the immediate effect of coronavirus on demand for unsecured credit and on the role of credit information.
  • To report on possible trends and potential future pressures.
  • To identify areas of growth in demand from consumers for credit including from non-traditional providers of credit.
  • To present an assessment of the benefits and harms evident in the market and those that may be expected as the market develops.
  • To compare international approaches to these issues where relevant.
  • To make conclusions and recommendations to the FCA Board on management of harms in this sector; gaps in understanding or data; potential changes in regulation; advice on potential changes to the overall system the FCA may wish to consider; and possible innovations to support a sustainable market.

Key findings

The review finds that more does need to be done to ensure a healthy sustainable market. Top level findings include the following:

  • Certain new credit products that are currently unregulated - particularly BNPL products (buy now pay later) need to be brought within the regulatory framework as a matter of urgency.
  • The economic effects of the pandemic will drive demand for debt advice. Providers of free debt advice need access to secure, long-term sources of funding to ensure that advice is available to those in need.
  • For the good of consumers and firms there needs to be a more outcomes focused approach to regulating the credit sector that looks at how products are used in the real world and consistently regulates on that basis.
  • Greater emphasis needs to be placed by the FCA, but also the government and other stakeholders, on ensuring a holistic approach to key issues – ranging from long term debt advice strategies, boosting the availability of alternatives to high cost credit, and the treatment of the very poorest when they need help.
  • There are significant opportunities to build a better credit information market to the benefit of consumers and lenders.


The review goes on to make 26 detailed recommendations, the following three of which were deemed urgent:

  • The unregulated BNPL market poses potential harms to consumers and needs to be brought within regulation to both protect consumers and ensure it is sustainable.
  • Ensuring strong provision of debt advice and debt solutions will be critical to a sustainable market in the long term and the recovery from Covid-19.
  • Having a sustained response to Covid-19 and related issues will be important, including examining credit masking and more prescriptive forbearance.

Points to consider

  • Methodological strengths/weaknesses: Very few details are given about any of the research methods, so it is hard to comment on the methodology. However, the sources used were typically other FCA publications, the advisory panel comprised people with considerable expertise on the topic, and the review author was previously the chair of the FCA, so the integrity and credibility of the review is not in doubt.
  • Relevance: Topical and relevant given the changes to the unsecured credit market during the coronavirus pandemic
  • Generalisability/ transferability: The review is specific to the UK market, although it is likely that unsecured credit markets are changing around the world, and there may be some lessons here for other countries too, despite market differences.
    • The review is aimed at influencing government and regulators, but anyone with involved in credit and debt markets and the impact on consumers would find much of interest in the review.

Key info

Client group
Year of publication
United Kingdom
Contact information