International Personal Finance plc (IPF) Earnings Call Transcript & Summary

Welcome to the first in our series of investor briefings, providing you with deeper insights into IPF, into our markets, our growth strategy and operations. Now as IPF, our purpose is to build a better world through financial inclusion. And in doing that, today, we serve 1.7 million customers around the globe in 10 different countries, improving their lives by bringing them into financial services, probably for the first time for many of them. Now a key part of that growth story has been Poland ever since we started this business. And today, I'm delighted to be here with Aga and we're in Warsaw. And so today, we're going to talk about our Polish business. It's unique market positioning, how it serves its customers and the millions of Polish consumers it served over the years. This is a business which is incredibly important to the overall group. And obviously, today as well as talking about the business, we're going to talk about regulation and how it has impacted our business, but also about Aga's plans for the future and how our new products will help us to deal with that new regulation. So with that, let me, first of all, introduce you to Agnieszka Klos-Siddiqui, who is our Country Manager for Poland, and I guess, Aga, the best thing, first of all, would be to get a brief introduction from you of how you've come to be one of the most recognized female leaders of businesses in Poland today.

Thank you very much. So I joined Provident 16 years ago when I came from consulting industry where I started my career for over 8 years. So now it's 16 years in Provident. I started in finance department, and I went my way through the Deputy Finance Director. Then I started a little bit more exciting journey. I was responsible for the business development, mainly developing new products, but also new channels. Then I started to be sales and service director. So the person who is responsible for all our network of customer advisers. And 5 years ago, almost exactly at that date, I was promoted to country manager position.

Fantastic. And I'll pretend for all those finance people who are watching this that you didn't imply that being a finance person was a boring job. I know you don't...

It was exciting job. But then I started something new.

Good. Okay. So as I said in my introduction, Provident Polska has been a hugely important part of our business and continues to be. So perhaps for those people who are watching today, some background on Poland and the business in general will be very helpful.

Poland has been a Democratic Republic since 1989 when the communist regime was terminated in a peaceful and democratic process. When -- we are now a member of EU and NATO. Hence, this is our last 20 years of history. Poland is also a sizable country. It's fifth in terms of population and territory in EU. And currently, we have just over 38 million of citizens. And that number is important when I will be talking about Provident. So please remember this number. Poland is also very important in regional economy. We are sixth largest in EU and 23rd globally, if you take a GDP as a measure. Just to give you a comparison to what has happened in Poland in the last 30 years. So when we started the development after the communist regime was terminated, we've been only 29% of German economy in terms of GDP per capita. And currently, we are delivering 65%, so huge development, which contributed, obviously, to general wealth of the society. This obviously contributed also positively to unemployment, which is currently at the level just below 3%, and it's amongst the lowest in Europe. However, recently, what we observed, like many other countries, we are experiencing negative consequences of the energy crisis and our current inflation is just over 17%.

Yes. And I guess inflation is an issue for all of us all around the world and Poland can't escape that. One of the things that I've noticed as I've come to Poland over the last 10 years is just how the market has developed. And even just walking or driving around Warsaw, the changes are fantastic. But clearly, one of the impacts that's happened to our business, particularly over the last 5 or 6 years has been regulation. So can we talk a little bit about regulation and how you see that?

Of course. So before we go to regulations, let me start to explain the political system in Poland. So Poland, as the Parliamentary Republic, is having all the checks and balances to secure our jurisdictional system. In terms of our political system, it consists mainly of 2 chambers of Parliament, the President, the Constitutional Tribunal and Supreme Court. The most powerful is Constitutional Tribunal with its role, which keeps the right to actually reject the acts, which are designed against the provision of constitution. Since 2005, we have the main political party. Actually, power was shifting between 2 parties. One is right wing conservative nationalistic Law and Justice party. And the second is more liberal center-right civic platform. Currently, Law and Justice is in power. This right wing populistic government since 2015 is in the power and is very much focused on unprivileged and national routes. When it comes to our industries on nonbanking financial institution sector where Provident is part of, it has been ongoing divide on the proposed new limit of the total cost of credit. It actually started mainly from 2016. The proposal reflects the government need to give financial assistance to the [indiscernible]. So it's in line with what the government is declaring as the main fault. Obviously, over the last few years, we have built a very effective stakeholder management process, which includes politicians, journalists, NGOs, public administration representatives. Thanks to this, we are able to identify regulatory risk at the very early stage, and we have proven track record of managing them. But I'm sure, all of you are now interested to hear more about proposed regulatory changes, which have been going through the parliamentary process just recently. So there are 3 parts, which impacts us. Firstly, the proposed reduction in total cost of credit, we call the TCC, which we expect to come at the end of this year. Secondly, the enhanced affordability assessment, which we expect to be implemented from June '23. And then the last element, third element, will be regulation supervision by KNF, which is local supervision for financial institutions, which we expect to start in January '24.

And we're quite comfortable about that extra supervision.

Yes, of course. Actually, we've been promoting this idea that NBFI sector should be under KNF supervision.

Okay.

So now let me focus more specifically regarding the rate cuts. So currently in Poland, we have 2 legislations, regulating cost of loans. One is cap of interest; and second, is cap on noninterest cost of credit. What is proposed in the current legislation is a change of the cap of noninterest costs. Currently, the cap consists of 2 elements: First is flat upfront 25% charge, and second part is 30%, which is variable, and this 30% is per annum, but you address that, obviously, for the duration of the loan. So just to give you the example, if you have 18 months loan, the maximum cost is 25% upfront and then 45%, so 30% adjusted for 18 months period. So that gives 70% in total. What's important in this regulation is that the maximum cost of credit cannot exceed 100%. In my example, it was 70%.

So irrespective of the churn, the maximum is 100%.

Exactly.

Okay.

And what's happening now in the current proposed cap -- the cap changes. So those 2 elements changed to 10% and 10%, so from 25 and 30.

10 upfront and 10 time weighted.

Exactly. That's why we very often call this legislation 10 plus 10. Maximum of those 2 components is 45%. On top of it, we can charge interest costs. Interest costs are variable and actually everybody experiences that right now. So currently, the mechanism which we are having implemented is giving us a maximum of 20.5%. Just to give you also the comparison on APR, which everybody understands. So in the regime, which is currently working, maximum APR on the loan, which I -- which we are issuing the most often for 14 months loan is 180%.

That's the maximum.

The maximum in our current offering on the current cap. If we apply new cap, the maximum will be 70%, so significant reduction.

Okay. But still an APR of 70% by most people's standards, is quite a high APR.

It sounds high. But obviously, if we talk about short-term lending and our lending around year, 1.5 years, it's still short-term lending. The APR is a measure which might be misleading for some customers. Obviously, TCC is lowering what we are having operating under until now. And -- but we remain confident that our business will continue to be the main source of financing for our customers who are mainly underbanked and underserved. Over recent years, as this regulation, as you might remember, actually is being discussed for the last 6 years. We managed to innovate our product offering. We established completely new products, like, for example, our new loan cards product on which I will touch on a little bit later.

Okay. Well, thank you,. I think that's hugely helpful for our audience because regulation in Poland is complex, and it has been changing. So I think people will really appreciate that. So if we talk now a bit about Provident Polska as a business, the business you lead is a huge business. It's an award-winning business, multiple awards, too many to mention. And we effectively employ about 5,000 people. So let's give people some insight into the business itself.

My pleasure. Provident is on the market for 25 years. This year, we celebrated this anniversary. And during that time, we had privilege to serve over 4.5 million customers, that's why I said the 3 -- it is important just to have a comparison of the percentage of the Polish population which we serve. Currently, we have 440 active customers, and what's even more important is their satisfaction in all the surveys exits 90%.

So 440,000 active customers today.

Exactly. We are also having different ways how we serve them. But for example, our network of agents representative this is 3,500 people, and they are spread all over Poland so they can see the customers on a daily basis. We create also a place of work, which is priced by our employees. We are getting 9x. We got 9 times the award of Employer of the Year, which we are very proud of, as one to mention. But also, it's very important to understand that our organizational culture drives our employees to stay with us longer. The average length of service is over 8 years.

It is probably one of the most unique and amazing things about our organization as a whole. It's just how long people stay, and I've been here 10 and you've been here 16. So in some people's eyes we are fully depreciated assets. Now one of the things that is unique about the business is our purpose. So our purpose is building a better world through financial inclusion, and that really drives everything that we do in the organization. And it gives people a real sense of unity around that purpose and what we want to do. So could we talk a little bit about how that translates in your business here in Poland?

Okay. So we are purpose-driven organization, only giving this example, about 4.5 million people being served for the last 25 years gives you the flavor how close we are to our customers and how actually we help them to fulfill their plans when they need it. Our business is also built on the responsibility, transparency and partnerships. And that's why we are sustainable business despite all the changes which are happening all over. We are also providing the career and income for 5,000 employees and customer representatives. But also we contribute to local economy. Last year, we paid GBP 10 million taxes.

I hope the politicians appreciate that.

Oh, yes. Once -- actually, we almost got an award for the biggest taxpayer in Poland, it was a few years ago, almost you will be on 6th place.

I'm not sure that's an award. I want to win, but...

We are also very active in terms of memberships in the key sector associations because we would like to deliver this constant dialogue with regulators also to be able to shape the regulations like, for example, of this KNF supervision. And now let me move to ESG. What do mean by that as well in Poland? So obviously, we are building better work for financial inclusion, but not only, there are also other ways how we can help building better work. We started many years ago. Actually, we are now on 28 addition of the program because we run that twice a year. We started the program which is called Yes! I help.

So what is that in Polish?

[Foreign Language] And in this program, we managed to start and run 700 projects and in each edition, at least 300 volunteers are participating. This year, we are having something called what's obviously in our thoughts and hearts of everybody. So my favorite for this year, which I wish it wouldn't happen is our project, which we call Mother's House. Our employees use their own skills, own time and energy to renovate a house, and then we created a shelter for mothers and children. Obviously, all of them refugees from Ukraine. We dedicated -- we are dedicated to this project. We believe it should be long-lasting engagement, and we continue to give support. Just to give you the scale of the project. Currently, we have 40 people living there, 40 mothers and children. And we are having 4 newborns, which were actually born when mothers were living in the house. And the youngest is not even 1 month old. But we are also dedicated to the professional career of women. We are supporting women, obviously, in this organization as country manager is a woman. I'm supporting women in professional development. And that's why we have a program and the power of Provident Women. It's obviously not all. I can't talk about all the projects. So let me only focus you on the picture you can see 2 of the examples which we are having. So for example, we planted 40,000 trees, and obviously, we renovated mother houses, those 2 pictures you can see on the presentation.

And I have to say for me, the Mother's House is a fantastic example of our people coming together to help the less well off. And that day that you took me to see the families in the house and to meet them and see what you've done there was probably one of the most impactful days in my career, I would say. So I think that's fantastic, and that hopefully helps people to understand that we do a lot more than just provide finance. Now if we go back to the more global economic scenario, clearly, it's very difficult for all countries at the moment, and our business is not immune from that. So could we talk a little bit about how the business has performed this year?

Of course. In Provident, we have performed well. However, I must say that this year, we started with some difficulties. The demand of the market was dropping and because at the beginning, it was still COVID time. And then obviously, the war in the Ukraine impacted the customer demand hugely. However, we managed to recover in the second quarter. So that's why you can see on the slide that our lending growth year-to-year is over 9%. However, we are observing that there is increased risk of the cost of living. So we have to be prepared for that. We are investing in growth and focusing on growth. but we have to also take some control measure to make sure that if the crisis continues, we will be able to start some preventive actions. Actually, we did already, and we took some actions, so we limited lending to the higher-risk new customers and also, we tightened our debt-to-income criteria.

So that's preemptive action. It's not that there's any deterioration in customer repayment performance or the portfolio quality. It's just us trying to think ahead about how inflation might impact the incomes of our customers.

Exactly. It's our active management of the future risk, which might happen. Also in terms of receivables, we are growing our portfolio. So this year, we grew year-to-date, 7.5%. But if you compare year-to-year, September to September, for example, we grew over 16% in terms of receivables book.

Which is fantastic, really by anybody's standards, it's a great result. So if we look now -- so that's our performance in the marketplace. Let's try and give people an idea of where we sit in the market because, obviously, there's plenty of competition out there. So if we could paint a picture for people where Provident sits in the Polish market.

Okay. Provident has started 25 years ago, and we've been the only company like that on the market. But for last 10 years, NBFI market has developed really dynamically. First, big change was when our competitors entered the market, so [indiscernible]. And you might remember that theirs main product was payday lending side product.

Yes.

This entry to the market, obviously attracted customers to use such a product. Products were aggressive first loan for free.

Which I personally remember because you and I spoke about it back then, and you were really concerned that, that would upset politicians and regulators this idea that people were going to borrow money and it was free, which was never the case, but that was the advertising at the time.

And this was actually materialized because as you might remember as well, I'm sure you do, the development of regulation started actually then because some customers they had some issues with repaying the high-APR loans, especially by refinancing. And then obviously, it attracted this industry to the regulator. So that's why in 2016, the current rate cap was introduced. So as you can see, it's not a coincidence. So that's one change on the market. The second change was change in our customers and their preferences. And we could identify 3 main areas of changes of our customers. First of all, the recent one, COVID sped up the digitalization. Our customers started to be much more digital. But at the same time, what we notice is that the customer, they like human touch. So for us, actually perceive that as our -- one of the main advantages because we can deliver both digital loans with human touch via our customer advisers. Second element is that there is a lack of stability in the economical environment, but also our politicians and regulators, they talk a lot about total cost of credit. So customers started to be much more aware of the cost of the lending. And this caused us additional pressure that we need to be more careful, we need to give more comfort to the customers when they take financial decisions. And the last element is also our customers started to like the purchases in points of sales, but also in e-commerce. However, we are still, despite all those changes in the environment in the competitive landscape, we are the strongest brand in NBFI and we are also the one which is having the higher -- not only highest brand awareness, but also highest recognition and consideration among our customers.

I know that you are continually winning awards in marketing and brand recognition.

We are really paying attention to the brand which is trusted. Just to give you the illustration how the market looks like. So you can see that Provident Polska is in the middle. So we are between the private lenders with expensive loans for very short term and also, on the other side, between banks who are giving for longer terms, higher values, but with lower approval rate.

And the one thing that jumps out from this picture is just how many competitors there are, but as you see, our brand is so well established and recognized. I think despite the number of competitors, we still can command a really big market share. And I think mostly because of the way we serve our customers. Now about our customers, one of the misconceptions is that our customers don't have any money, they'll borrow as much as they can, and they're not really that worried about paying. And also there's a misconception that our customers are an older generation. But you and I know that that's not actually true, is it?

Now if I can give you an example, I would say, if you go now out from the Warsaw office, and you find a random person that could be our customer because we're serving the whole spectrum of the population. On this slide, you can see what is the share of the customers from a particular group of the segments in Provident Polska and what's in the country? But first, for the segment? What does it mean, the segmentation of the customers. So in 2016, we introduced the segmentation model, which gives us the understanding of our customers and their needs. The segments are based on the preference of the customers to use product or channel but also how they take financial decisions, what are the needs there, they try to support and how much they earn. What's the income of those customers. So we have 3 traditional segments with relatively low income and higher financial pressure. So the customers which you mentioned. So those customers are grouped in young dependent, struggling families and seniors traditional. And those segments, they grew with us. These were the original segments we started with. However, after the changes, after the competition increased in Poland, we had to adapt and we had to change also to attract other groups of the customers, and this is what we did. That's why, currently, we have also those new groups. Young expanding, mature, reasonable, and resourceful seniors, which are having medium income and lower financial pressure. They rather satisfy their aspirational needs. And there is one last group, which you might think is not natural for our business, we are well off. Those people are earning more than PLN 6,000 monthly, you can count Zloty to pound like PLN 5 per GBP 1.

GBP 1,200 per month income.

Exactly. And these are also our customers. As you can see, 6% of our portfolio are those customers. But what's important, not only actually for them but for every customer, we need to have a tailored offer that fits to the needs of those customers. And we are having this tailored offer. We have flexible products. We have pricing strategy that addresses different price sensitivity of our customers' groups. And we have a big unique business model. We are combining both digital and home service to address the needs of the customers in the most efficient way.

Okay. Look, that's really helpful because I think that clearly demonstrates that we've expanded the brand, so the elasticity of the brand, and we've made ourselves attractive and relevant to more customer segments. So clearly, we must be evolving the distribution set and the channels and the products. So could we just mention a little bit about that?

Yes. So both of those changes. So changing competition and changing customer needs boosts us, but also it was for us the innovation, which we wanted to do to the development of not only traditional agent channel but also digital channel and something that's really unique on the market, which is hybrid. I will touch on that in a little bit later. So we are operating in those 3 channels. But what we sell in those channels, what are our products? We have obviously cash loans, our traditional product, everybody knows. But also in last few years, we developed a big portfolio of value-added services and products. And recently, we started our new product, loan card. Let me start from the channels first. So if we talk about Provident as agent, everybody knows our agents channel, everybody knows our agent. But the journey was quite long. 25 years ago, we started with agent who is having one product, one type of the loan was using paper visiting customer at home, granting the loan and collecting those loans.

An installment loan, paid in cash, collected in cash every week, and there was no variation. That was it. That was what we sold.

Exactly. Fantastic easy business. However, obviously, we developed this business. So now we are having the customer representatives who are well educated, Vast majority of them are having at least high school or middle level education, they are graduates, but we also invest a lot in education and quality of our customer advisers. We are providing multiple trainings starting from the very first training about the product and how to sell but also going through the ethics program. We go for the AML compliance and we give also the insurance certification.

For every one of those agents who wants to take that on.

Exactly. So now we are having agents above 70% of them. They are a certified insurance agents. And it's a massive effort from the agent side to actually go for this training.

Fantastic Okay.

Those customer advisers, obviously, are selling the variety of different products. I will explain them in a second. Now let's talk about what those customer advisers need. So first of all, we do care about our customer advisers. We are making sure that their experience in the company is as good as possible. So not only we provide them with trainings, but also we run a multiple service to understand what they need, what would support them in delivering this much more complex work at the moment? One of the elements is obviously the equipment. So we equipped our agents with electronic tools, tablets, on which they have not only the offer presenter, so to present the offering the best way to the customers but they also have other tools like MyProvi. So our in-house built system, which provides the customers with sales, collection, self-service, balancing and many other options.

It's interesting. A lot of discussion in there with the agents about digitization, digitization of what they do, how they do it and to some extent, digitization of the product or the channel. But I do remember that we bought MCB Finance, which became IPF Digital back in 2016, I think early 2016 -- or 2015, but before that, actually, your business started digital for us. You were the very first country in the group to start a digital offering for our customers.

Yes, because we saw the changing customer needs, mainly because the customer -- they could see this option through our competitors. We will start it in 2013 and they had only digital option. So we launched the digital channel. We call that internally ProviDirect, but for the customer, it's not ProviDirect, for customers, Provident, customer comes to Provident, and it doesn't matter if the customer comes on the website, it's Provident for the customer. For us, it's a huge advantage because it means we are really leveraging on the brand awareness. We don't have to pay a lot to advertise this channel. The customers they know, they come to Provident. So currently, as you can see on the data, our customer lending is actually growing very rapidly. So last year, year-to-year growth in the fourth quarter was over 45% in terms of customer lending, but also our customer portfolio grew by good double-digit, 26%. We reached the point that we are over 50,000 customers in digital channel.

Okay. The growth numbers are fantastic because -- some people looking at the business might think, well, we either have home credit through an agent or we have digital. But the truth is, there is actually quite a big and growing important piece in the middle, which we talk about as being hybrid. So could we just describe for people watching what we mean when we talk about hybrid?

Yes. So if you think about customers, they come to Provident and actually vast majority of them, they are coming to the website. But we can't approve everybody in end-to-end digital process, because obviously, we have our own credit scoring, we know which customers are able to take loan digitally and deserve digitally and which should be under assistance of our customer advisers. So 23% of the traffic of the customers, which is coming to our website is then directed to the agent and closed as a contract is closed by the agent.

So the customer comes on the website thinking I'm going to do everything digitally, but actually for whatever reason, their credit or their history isn't strong enough and then we move them into the agent channel.

Exactly. So then agent comes at home, is explaining the product because sometimes it's also a question of if the customer understands the product, verifies the customer and is issuing the loan. And then this agent is also providing home collection. So it's a huge competitive advantage because none of our competitors who are in digital space can offer this type of the service. And for us, for a business, it's also a huge advantage because we can efficiently utilize the traffic, which is coming to our website because in other cases, we just lost this 23% of customers interested in our loans.

So we're satisfying more customers.

Of course, financial inclusion. But it's not all. We have also second part of hybrid, which we call service. So there are some customers which we approve in end-to-end process, and those customers are getting along fully online, fully digitally. But sometimes later, those customers may struggle with actually managing regular payments. And then agent comes with help to discuss the payment process to discuss how we can help the payments. That's why we are obviously taking the customers back to the routine of paying, and we are minimizing the level of write-off of the customers.

And ultimately, I suppose we're trying to get the customers back on track because if we can get them back on track, they start to rebuild their history and any data that they might have at the credit bureau.

Of course. So it's very beneficial for the customers. So the last part of the journey of the hybrid journey will be the customer retention. We would like our customers to go smoothly between the channel with new product offers. So this is the one to come. Now let's talk about products because I explained what we sell, but -- or how we sell. And now let's talk about what we sell. So what is our product offering. Everybody knows cash loans. These are our traditional products. So multiple options starting from 6 months to [indiscernible] months up to PLN 30,000. It can be in weekly option, monthly option. It can be digital, it can be home service. It can be mixed as we just discussed. So as you can see, a lot of options. But I would like only to mention here that we give also other benefits with this product. So we have payment holidays embedded in the products, which is very, very beneficial for customers and especially during COVID times, it was used, but also, we have debt waiver in case of customer debt. So we have those services embedded.

And the payment holiday essentially means is if I as a customer have a difficulty in a week or a month, I can call up my agent and say, look, I can't make a payment this week. Can I take my payment holiday?

Yes. And you can use this option 6 times in the regular weekly loan or 3 times if you have monthly loan. It's actually something which might be interesting. During the COVID times, we had 150,000 customers calling us, can I utilize my payment holidays. So let's not now move to value-added services. This is something what we developed in last year, and it's actually playing a very important role for us, mainly because it's purely what we call social economical inclusion because our customers are getting a variety of different products. And in other circumstances, they would not be able to get those products because our customers, they can't afford for example, private medical care. But with our purchasing power and with our huge portfolio of the customers, we are able to deliver products which are really well priced, therefore, having fantastic terms for our customers and customers can buy that being with us. So we developed a range of 3 groups of value-added services. And as you know -- as you might know, we are delivering our strategy actually quite constantly. Only last month, we started to roll out of our last product, which is online learning. We are giving English classes, which as the British company, we are very proud that we are delivering that to our customers on a very, very competitive price.

And is that proving popular?

It is very popular. And I remember there were some doubts on our colleagues, but it is very popular. The best proof of popularity of this product is that our customer advisers are buying products for themselves or for their children. But I think you asked the question, which is actually core in what we're doing. We don't deliver products because we believe they will be good. We ask our customers and our customers' advisers, what will be good products for our customers. And to deliver the portfolio of the current products, which we are having, we had over 12 different focus groups to give us feedback.

And in fact, the whole value-added services and internally, we call this [indiscernible] for short. The whole value-added services across the group for me is one of the things I'm most proud of because it's not a product or a set of products that we're trying to make a great deal of money out of. It's an additional service we're trying to provide to the consumers. And as you said, for the vast majority of our consumers, they either can't access these products themselves or even if they could access, it would be at a price that was disadvantageous. So we bring our purchasing part of that relationship and help them.

And it's really appreciated. What we noticed recently that our customers who are having other products with us, they tend to stay with us longer, and they will apply for another loan to keep these relations because they can see that every few months, we are delivering something new and they would like to use the option of getting those products.

Correct. Now we've talked a lot about product. We talked a bit about digitization. We've talked about our agents. I'm sure that many people tuning in today. One of the things they really like to understand is our response to the TCC that you talked about at the start of this introduction. And that is what is our response, both in terms of product and we know it's still loan cards because we've talked about it publicly a bit. But I think people would really appreciate understanding what is the loan card? How does it work? Will customers like it? Will it be so different for them, they want to understand this. So maybe we could deal with that one.

Okay. Let me give you some illustration on that. I must say we are very excited about this product because it took us 3 years to develop the solution. And it's a significant step forward. So first and most important element of this product is that we are keeping loan card as close as possible to what customers understand. We developed in-house solution, it's a loan card product engine. so we developed the solution, which will be the closest to the experience the customer had already with Provident. We named that even Loan Card, so to make sure that its credit card adapted to the needs of provident customers. And our approach now will be evolutionary. So we started the product already, and our customers are buying these products. agents, they like it very much, and we will be rolling out of this first version of the product, but still, we believe there's a potential to grow. We will be delivering more features to the product. And this process, this evolution will last 2 years. Now let me give you what are the key elements of the product offering. So first of all, we are maintaining our current proven business model. So the loan card is distributed by the agent. Agent comes to the customer house, is signing the contract, is explaining the products, but also as the first transaction, the customer can take the cash disbursement. That's the first transaction.

So you're an agent, you turn up at my home, I want to borrow PLN 1,000. You explain the product to me, but it is this loan card. But at that point, you said to me, if you wish, I can take the full balance in cash.

Yes. it's even better because you might think that you need only PLN 1,000. But the reality is, and this is what we experienced in past years, many customers, they underestimate the need -- and in the current regime of so-called 120 days roll, we can't offer another loan in this period.

So just that I was looking in, you might not be aware that in Poland, there is this regulation that if you lend -- if you provide a customer with a loan, you can't re-lend to that customer within that 120-day period. So if the customer realizes, I wanted 1,200 instead of 1,000, they've got to wait a full 3 months before they could ask for any more money.

Exactly. With the loan card, we have obviously a different option because even if you think you need only 1,000 Zloty today, but your credit worthiness is for 2,000, we can offer you. We can sign the contract for 2,000 and you will just utilize 1000. This is your credit limit. You can use that later. So the first transaction very often actually in the vast majority of the cases, which we are having at the moment is the cash transaction, the agent is cash. But then the customer, when having plastic credit card, which will be delivered in a few days by a courier can go to ATM and transact there, can go to the shop or can do the transaction also in online up to the limit. All costs are calculated only based on the usage and based on the time of usage and that's a very important feature for our customers.

So if I have a limit of 1,000, but I only use 600, I only pay for 600. I don't pay for that unutilized balance.

Exactly. So you will pay for 600 and only for the time you are using this cash because you might repay earlier. So the key customer benefits are pretty obvious. So flexibility, you can take your cash whenever you need, you can utilize your full limit. You have even grace period. So as I mentioned, if you take 600 and you repay in 2 weeks, you have grace period you don't pay. All the transactions are to be repaid in 11 months period. So it's like 12 months from the drawing of the cash. And it's very important for our customers because they know when they finish the payment. So they are avoiding this persistent debt.

And interesting, I think that's another misconception that people might have about our customers generally, is that they want to borrow money and they want to always be borrowing money. It's not the case actually because it's in my experience in all of our businesses, those customers who borrow from us want to know they can repay it over a fixed period of time. They want to see that debt coming down each week or each month.

And this is exactly what we embedded in our loan card. So the customer can see, this is my time of repayment. I will repay my effectively monthly accumulated balance within 11 months. Obviously, the customer may take a decision to reuse the card up to the granted limit. But for those who would like to feel comfortable, I'm just repaying and that's the end of my debt, they can use this option as well. Obviously, there are now fixed fees allocated and no penalties to the product. For us, there is also for the business many benefits. One of them is the loyalty of the customers. We are having the product which will be issued for 4 years, even if the customer uses that only for first year. But in 4 years period, may just call us and tell us I'm using the product or just make transact because the cards will be active up to the limit. The limit will be renewed every year. So when you finish next year, you can check what's your limit and then take another transaction. What's also very important. We are having this 4.5 million of customers, which we mentioned. But in the portfolio, we have only [ 414 ] what we discovered in our test, which we are running right now that many of the customers from this 4.5 million, they moved in the ladder, and they don't want a loan, but they're very happy to take a credit card, our loan card.

So they've moved up the credit ladder as it were possibly become more sophisticated borrowers and would like a different product.

This is exactly the case. Obviously, as you might imagine, we are very excited about this product. So we are regularly checking with our customer advisers, for the feedback of the customers. And they are sharing with us those examples how the customers reacted. So one agent in one week sold 4 loan cards, 3 of them were to the customers who didn't want a loan in the past. We couldn't reacquire those customers. But with this new product, they were very happy to rejoin Provident community. So let's talk briefly about the rollout plan. So we are now at what we call technical solution, which is minimal scalable products. As you can see, it gives a lot of benefits to the customers, but this is not the end of our journey. So for next 2 years, we'll be enriching the product but also will deliver digital option to our customers. And what we believe is that this product will not only be successful in Poland. We truly believe it can be transfer, transported or copied in other European markets. And this is actually the thought which we had from the very beginning. We built that solution as a solution which can be used by other countries.

And I think that's fantastic because it's one of the things that people who know the business for a long time will understand is that we're actually quite a conservative business in the way we run. And so even though you have the product out there now and you're testing it, we're not just going for a big bang. We're going to test it. We're going to release certain aspects of the card over time as we see behavior. And to your point, this is really important for the group, as we prove how well it works in Poland, then we'll look to move that to other businesses as well.

Exactly. So let me summarize only loan card and its financial economics because, obviously, now we are facing the situation that we are expecting that the TCC will become a loan. So currently, our loan booking provident is GBP 280 million, and it's delivering between 15% and 20% ROE. Our expectation is that the business during the transition of '23 and '24 will still be profitable. However, it will -- the receivables book will drop to around 75% of current book at the end of '23, and this is mainly because we will not be able to serve those customers who under new affordability rules, which will land in June '23, we just will not be able to serve them. However, we expect that this transition will finish in the next 2 years, and we will regrow the book to the level of current size of GBP 280 million. In this new receivable book, we expect we'll be having around 50% of our loans and 50% of the loan card. And we still believe that in 2025, we will deliver targeted ROE, so above 15%. I think now it's time for summary unless you have some more questions.

I think that's been fantastic, Aga. I think for those people watching in today. I think that's been a really, really positive insight into our business. We've had a business here for 25 years. The mere fact that you've served more than 10% of the total population of Poland is incredible. If we had another hour, we could probably go through half of the awards that you've won as a business. And the dedication of our people here is exemplified by the Mother's House and all that is just outstanding. Provident Polska continues to be incredibly important to the group. And we are going through this transition period that we've just described here with the loan card, but we're doing it in a way that we feel very comfortable about. We're testing, we will learn, we will release more functionality, and we will grow the book. And that's why we have this transition period where there is an impact on the PBT for a couple of years. But as you said, and this is critically important, we get back to the hurdle rate of 15% ROE in year 3. But I think the most important thing is that Poland, as in all the other markets where we trade, there will always be a very large cohort of consumers who need responsibly provided finance. So those who are underbanked and underserved, and I think that is our USP. We do that better than anybody I know. And I've been around and you've been around a long time. But I think we do that better in a more responsible fashion than anybody else. And so long as we continue to do that, and we are focused on our purpose, which is building a better world through financial inclusion, this business will continue to grow and prosper, and that's something I really look forward to. So thank you, Aga, for those insights. So what we're going to do now, that's our kind of wrap up for this. We're going to go to the Q&A section now. So hopefully, having listened to all of that, you have had a chance to think about the questions you'd like to ask, hopefully, mostly for Aga because she knows all about the business over here. And so let's go to questions now and fire away, please.

Good afternoon, everybody. We will now move to the question-and-answer session. Quite a few questions have come through during the presentation. Thank you very much for all of them. And we will start with a question from James Hamilton at Numis. However, this theme has occurred in a few other questions as well. How significant can the new value-added services become in terms of revenue for Poland? And how far down the product evolution road are you?

So at the moment, we are at the level of more or less 10% of our revenue being generated by the value-added services. In terms of development, as I just mentioned, we are continuing rollout of the last product in our, let's say, plan for now. So we are having 3 groups of the products, insurance products, medical subscription. And now we are in the rollout side of educational services.

And the other thing to say there, and this is for the group as a whole, James, is that for us, it's really important to provide our customers with a service that's good for them. It has to be something that they want and it has to be at a price point that's useful to them. But in particular, when they want to claim on that policy, it has to be the exception where they don't get paid out and we produced the starts earlier because we're proud to say that the vast majority of claims under these insurance policies get paid. It's really important to our customers and to us.

Thank you. And here's another one. when are customers charged penalties?

So it's a relocation when the customers are paying penalties. Typically, it's after the term of the loan, but only after additional grace period, which we provide to our customers, so additional up to 8 weeks or 2 months after not repaying the loan. But what's more important is that we prevent our customers to get into situation of penalties because we provide them with the payment holidays. So the customer can use 6 payment holidays on a weekly product, typically and avoid the situation of them being in the delay of paying the loan.

And the next one, what is the percentage split between salary, commission on sales and commission on collections repayments for agents? How are others in the business remunerated?

Okay. So I'll pick about the agents. So in Poland, agents are not employed. So they are not getting salary. So they are paid based on the performance. In terms of our commissions, it could vary depending on what's our strategy in the particular period. But typically, 70% of the commission comes from collection and 30% from sales.

And then for the other people in the organization, particularly the senior leaders in the organization, it runs throughout the whole group, and that is that we get our base salary, and then we get bonus based on delivering the KPIs or the targets we set ourselves a year in advance. So very much people are incentivized to do the right thing, but then to outperform, so that we deliver for our stakeholders.

And here's a question on customer acquisition. How does Provident Polska persuade customers to borrow from advertising, referrals or some other way?

All of them. So the customers can come to us using our website and actually a significant percent of our customers joining Provident are coming through our website in different ways. Some of customers that are calling our call center, but a significant portion of our new customers acquisition comes from the agent and referrals from our customers.

Okay. And here is a question regarding the loan card. What do you see as the biggest challenge to the success of the loan card in Poland?

I strongly believe that loan card will be a very successful product. It's mainly because we started to develop this product many years ago. So the project itself started 3 years ago, but the concept already was born in Poland a long time ago. We know that our customers, they need products like that. And the story which I was sharing right now that those customers who left the Provident already and didn't want another loan, they are coming now because we have this new loan card product. So they really appreciate the product. We are now well advanced in our pilot phase. It just started to roll out of the product to have country -- national coverage. And we are monitoring surveys from the customers but also from our customer advisers, to know exactly what the customers are saying about the product. So I must say, I strongly believe in the success of this product.

And I think it will be a huge success. And I think, in fact, the biggest challenge is going to be perfect execution, because we are taking a business that for the last quarter of a century, has been delivering installment loans to a cohort of customers. We're now going to take a lot of those customers and explain to them a completely new product that they haven't used before. But all of the testing, as Aga said, that we've already done and we're continuing to do even today demonstrates that the customers like the product once it's explained to them fully. So Aga said, we believe it's going to be a success. We just need to make sure that we execute effectively on that rollout.

Okay. And here are a few more questions regarding the same -- regarding the loan card. The card can be used on Republic of Poland territory. Is that because of the regulation?

Well, we've decided for ourselves that -- we want to test this in Poland. As I said during the presentation, we're a pretty conservative organization. We're going to make sure it works here. And once it works here, then we'll figure out how to take it to the other countries.

So is the credit card loan excluded from the new cap?

Yes, it is. It's excluded.

Okay. Now a question about the Polish representatives. Do you see any risks that agents in Poland will need to move from self-employed to employed status as we have seen happen in the U.K.

At the moment on the agenda of the government and the parliament, there are no discussions about changing this employment status. The sales employment status in Poland is actually very popular so we can't see this risk coming in the near future.

Is the credit scoring criteria model going to change under the new regulations?

Yes, of course. As I mentioned, we will implement -- we will be implementing later next year, so around June, we'll be implementing the new affordability rules. As a result of implementation of affordability, we will adjust our credit scoring. As I mentioned, we expect that at maturity up to 30% of the customers applying for the loan will not be able to get the loan.

Thank you. And here's a question from Stuart Duncan of Peel Hunt. Will the introduction of the agent technology, deliver any cost savings? Or is it more about generating additional sales capability, and also, do you have any time scales to roll out the loan cards to other geographies?

Well, I think that the -- what we've tried to do is digitize as much as possible of the business, both for ourselves and digitize the customer journey. So for us, rolling out that agent [indiscernible] technology is all about being -- making it a better experience for the customer, making it a better job for the agent. Yes, there are some savings in there. But in effect, what we're going to do is translate those savings into greater capacity within the business so that we can do more business. It's not as if we're investing and we're saying x million will drop to the bottom line. What we're hoping to do is expand the top line. As for rolling out the credit cards to the other markets, as I said, first of all, we want to see it be a success in Poland, which I'm sure it will be. And then once we're happy that, that is the case, then we would expand it to the other markets. And obviously, Europe would be the first place we would do that.

Do you envisage ever moving into mortgage finance?

No. No. Look, we're a specialty business. We understand our customers really well. They appreciate what we do. We provide small sum finance to those customers who are underbanked and underserved. Mortgage finance is a completely different business, requires different skills, different structure, different funding. And in the mean is not what our customers are looking for. So the answer to that would be no.

Thank you very much. Here's another one. Is there any sign of an increased use of payment holidays in recent months?

Now we are on a pretty stable level. We had some increase of usage during COVID, as I mentioned during the presentation. But currently, we can see very stable behavior of our customers and the quality of the portfolio also remains very stable.

Here's a question regarding the TCC. Will that TCC affordability criteria prevent Provident Poland from serving a significant number of customers, who will serve these customers? Or is the proposed 10 plus 10 regulation going to prevent a large group of Polish customers from accessing mainstream finance.

That's actually the biggest worry, and that was the main message we've been passing to the regulator to the politicians that this is a significant risk. When this regulation comes, obviously, it will be difficult for part of the customers to get the financing from the legal sources. We are doing our best to adjust our product offering to be able to serve as many customers as possible. But as I mentioned, not all customers will get financing.

Yes. Unfortunately, that is the case. And Aga said, we tried over many years to explain to the politicians that there will be customers who will be permanently excluded from financial services, which is not a good thing. Hopefully, over time, we'll figure out a way with the politicians and other stakeholders how to get those customers back in if that's what they want to do.

And this is the last question for now unless we get any new ones in the next couple of minutes. Why does the loan card fall outside the TCC cap and what would the impact be on the viability of the product if the scope of the TCC was broadened to include the loan card?

Well, it's a political decision, obviously, in conjunction with the regulator and the politicians have been looking at this for 6 years. So they've spent a lot of time and effort thinking about what they want and they've decided that the credit card should fall completely outside of it. And there's no indication at all that they have any intention of reconsidering that. So we don't get into that simply because it's not even part of that thinking at this point in time.

Sure. Thank you very much. These are all questions we got for now.

Okay. Thank you, [ Kasha ]. Well, look, a lot of questions there, and I'm sure we must be up against our market at this stage, which is what we promised people. Aga, thank you so much for doing this. I think that will have been hugely helpful to people who have watched this. And obviously, it is up online if anybody wants to go back and take a look later on. This is the first of a number of these introductions in detail into the business that we're going to do. If you've got any questions that you think about now or haven't been answered today, we are always available, and you know how to contact us through Rachel Moran in our office in Leeds. Hopefully, that's been helpful to you. What I can tell you is that the next one that we're planning is probably going to be in Mexico. So I'd be doing the same there with David Parkinson, our country manager in Mexico and I'd expect that we'll probably do that, hopefully, sometime in January. So if you've enjoyed that one, we'll be sending out a notice sometime in January about the next steps. Aga, thank you.

Thank you very much.

Well done to you and the whole team here. It's a fantastic business, I think is set for continued success. Thank you so much.

Thank you very much. Thank you.