Casualties of change

The dismantling of Provident Financial Group’s business performance was the major story at summer’s end.

Casualties of change

Provident’s operational restructure, which precipitated the chief executive’s departure and an ejection from the FTSE 100, to employ full-time customer service employees rather than self-employed agents, wrought havoc through staff attrition, falling sales and tumbling collections figures.

It has been by any measure a dramatic reversal in fortune. Provident has a history dating back to 1880, when it offered access to finance for those not served by the banks. In its infancy as Provident Clothing and Supply Co, it offered loans in the form of food and goods vouchers for working class families in Bradford.

Fast forward 128 years, and its growth since the credit crisis has been exponential. Pre-tax profits for 2013 were £196m; in 2010 this figure was £144m and for 2009, it was £130m.

But in the annus horribilis of 2017, investors have seen shares in the business plunge 65 percent after Peter Crook’s departure. His immediate exit was announced the same day (August 22) that the home credit provider issued a slew of bad news. That morning, Provident issued a second profit warning in three months, scrapped its interim dividend and came clean about an investigation by the Financial Conduct Authority (FCA) into an option offered by its credit card business, Vanquis Bank.

Perhaps one of the regulatory pieces on the horizon that initially prompted the operational restructure was the Senior Managers & Certification Regime.

Looking at the future ramifications of new requirements on oversight, there’s a question over what influence this notion had on the switch. Maybe the point Provident’s board grappled with was: How do you evidence oversight over hundreds of remote, self-employed agents?’

Looking from an outsider’s perspective and with hindsight, a second question that springs to mind is: Was Provident facing a ‘damned if we do, damned if we don’t’, dilemma?

However the decision was made, one of the risks of such a change was that agents would simply not take up the full-time role, and of those who said ‘no thanks’, one wonders how many customers they may have taken with them.

The upshot is that the regulatory situation must have acted in part as a catalyst, but what’s left in the immediate aftermath are casualties.

It could be argued the FCA claimed another casualty last month in Cheque Centre. Once one of Britain’s largest payday lenders, the company is now in administration.

The Edinburgh-based firm had previously traded from 450 branches across the country but backed away from payday lending in 2014 after pressure from the FCA.

At the time, the FCA’s then chief executive Martin Wheatley said: “This is an early victory for people that use payday lenders.”

The regulator’s warning effectively forced the business to accelerate its withdrawal from payday lending. The company subsequently started to close its stores and tried to shift online under the Square Today brand.

But with so many high-street branches, lease liabilities on these sites simply drained the company’s working capital.

After solvent restructuring attempts failed, and without an extra injection of capital, unsustainable pressure was placed on cash flow and the only viable option was administration.

There have been many other business casualties across consumer credit since 2014, with most emerging from the debt management and payday lending spaces.

In Provident’s case, its strong-performing brands and management team will surely see the business through testing times, whatever the outcome of the FCA’s probe.

What appears to be the case when it comes to deciphering what constitutes sufficient oversight, as far as the FCA is concerned, is that seemingly pre-emptive measures are just as fraught with risks as reactionary ones.