Good morning, and thank you for taking the time to join us in person and online. I'd like to make some brief remarks about Secure Trust Bank ahead of David and his colleagues presenting to you. Firstly, who are we? We are not a challenger bank. We are a highly successful specialist lender with a banking license. As Chairman, I was really proud of how much STB has achieved in recent years. We've seen the management, the senior management team refreshed, have developed a clear strategic initiative and narrative, become more focused on our remaining specialist lending businesses, and navigated the uncertainty of Brexit, the pandemic, inflation, and the geopolitical volatility of recent times. At times, I felt like a pharaoh as one challenge after another was facing us.
The current level of interest rates will obviously have an impact on consumers and businesses and banks. Although I, for one, believe, as the market now seems to expect, that rates have peaked and will start to come down again during 2024. Despite all the turbulences around us, the group has continued to grow, remain profitable, and has a team that is determined to achieve their ambitious plans. You will appreciate, therefore, the board's and my own frustration, that the progress made and the opportunities ahead are not at all reflected in the market's view of our future, given where we are trading currently. You will have seen last week's announcement that we've appointed Investec and Shore Capital as our joint corporate brokers, and Camarco as our financial PR advisors, to help communicate the group's potential and achievements to date.
This morning is an opportunity for the team to remind you of the group's plans, showcase the success and ambition of our V12 Retail Finance business, and provide more clarity on how we intend to deliver our medium-term targets. Our board is experienced, diverse, and the company retains a positive relationship with our regulators. We announced a great addition to the board last month with the appointment of Vicky Mitchell, who's here today. I became chairman in 2016, and will, as previously indicated, retire from the board at our AGM next May. The process to select my successor is being undertaken by our SID, Ann Berresford, and once the appointment is made, we will announce it to the market. Our dividend policy reflects the board's confidence in our significant growth prospects.
The board is well aware of the different views on the current policy, and I can provide an assurance that all that feedback will be taken into account when the policy is next reviewed. We have a strong management team, led by an excellent Chief Executive. When I think of him, I'm reminded of Roosevelt's comment on leadership and diplomacy: "Speak softly and carry a big stick." It is a pleasure to invite him to kick off this morning's event. David?
Thank you, Michael. Good morning, everyone. Before I start, I just need to bring to your attention... Is that it? I just need to show the normal disclosure notice, disclaimer notice, which is on screen now, and also in your pack for those who are in the room. And can I also just ask that phones are on silent or switched off? So thank you for joining us this morning, for what is our second capital markets presentation. At our first event in November 2021, we outlined to you our refreshed strategy, our new vision, and our new core purpose. The leaders of our specialist businesses also set out the many opportunities for growth in each of their markets, and as you know, and we'll come on to, we've been capturing that growth.
We've focused today's event on two key topics: a deeper dive into our excellent V12 Retail Finance business, and also to set out a clearer pathway to the delivery of our medium-term financial targets, with particular focus on the 14%-16% return on average equity that we set out two years ago. So let's just take a look at the running order for this morning's session. I'll make some introductory comments and provide an overview of the group. I know some of you are familiar with the group, but some less so. And then Nick Davies and Andrew Phillips, who respectively are the Chief Executive and Commercial Director for V12 Retail Finance, will provide a detailed spotlight on that business. They'll talk about their track record of success, their technology capability, and their future ambition.
Rachel will then provide an update on the medium-term targets before I make some closing remarks and provide the opportunity for questions, both for those in the room and also those joining by webcast. We plan to finish the session, as you can see, probably somewhere between 12:30 P.M. and 12:45 P.M., and for those in the room, a buffet lunch will be provided outside, where you can get the chance to meet more members of the senior management team who are here today or also just continue the conversation with those of us who have presented. So let me just make some comments on scene setting before we get into some slides.... In our conversations with shareholders, potential holders, analysts, and advisors, everyone shares our frustration at the level of discount we are currently trading at.
A significant discount to book value, as you know, and the share price at less than half the value it was at 18 months ago, is deeply frustrating for all of us. For those of you less familiar with our group, at the same time, we've been on a journey and making progress, significant progress over the last couple of years, and I'm delighted how colleagues and the management team have worked together to support and help customers and also drive things forward. The group is more focused following our decision to exit a number of our businesses, which were subscale and had no opportunity for growing in quite competitive markets.
We are simpler, we've improved the quality of our lending, we've added GBP 1 billion of net new lending the last two and a half years, and have improved our cost-income ratio, and have significantly improved our profit pre-impairments. We have confidence in our ability to make continued progress and deliver on our optimizing for growth strategic priorities. The macroeconomic environment, of course, has been challenging. We've been impacted by market segment, I think, and sentiment in their valuation, rather than it reflecting what we've delivered over the last two years or the prospects for the future.
As we've continued to make progress, we've navigated the impacts of the ongoing war in Ukraine, high levels of inflation, which have proven to be more persistent than anyone expected, the volatility caused by last September's mini budget, rapid increases in interest rates, and of course, the cost of living challenges, which impact both consumers and businesses. Of course, we can't control the external environment, but we can keep doing the right things, execute well, and communicate clearly to you the strengths of our businesses and the direction we're headed in. We can describe the capabilities that help us win and deliver market share growth. We can set out a clear articulation of our priorities and ambitions, and the reasons why we have confidence as a team in delivering on the commitment set out two years ago.
I want to comment on three common questions that we've heard from stakeholders in discussions that Rachel and I, in particular, have had. These questions relate to, firstly, the quality of unsecured lending in our Retail Finance business, the target to grow lending by 15% per annum, and our capital position. In Retail Finance, and you'll hear more about this today, we've been asked whether our unsecured lending is high risk. I can tell you that is not the case. Nick will demonstrate the strategic decision he and the team made four years ago to focus on certain retail sectors and categories, which repositioned V12 to serve lower risk, prime credit quality customers. Clearly, the concern is just the fact the lending is unsecured.
However, based on our review of industry data, our arrears rates in our retail finance business are significantly, in fact, materially lower than other unsecured lending asset classes like credit cards and personal loans. These are typically used to finance revolving debt and also for debt consolidation into a single monthly payment, among other things. Not surprisingly, different unsecured lending products and customer needs have very different credit outcomes, and Nick will show you the benefits that the strategic decision has led to a lower cost of risk in his business. On the growth target of 15% per annum, the question was whether having a defined target to grow each year was at risk of driving management to grow when it may not be appropriate to do so.
It was important two years ago to set out our ambitious plans for growth and the opportunities in each of our markets. It was also clear that we had no intention, and we, you know, have reiterated this a number of times, to grow when the environment wasn't conducive to doing so. In the last 18 months or so, we have continually tightened credit criteria in our consumer businesses, and the credit quality of our new lending in those businesses, as a result, is much better than it was previously and pre-pandemic. Since setting the growth target in 2021, we've achieved the level of growth that we set out. We no longer now need to grow at 15% per annum to deliver a return on average equity in the mid-teens.
We're replacing the lending growth target, as you'll have seen in this morning's announcement, with a new ambition: to grow absolute level of lending to GBP 4 billion. That in no way reflects reduced confidence in our ability to grow or opportunities in our markets, but we think it sets out a clear pathway to mid-teen returns and hopefully takes away the concern about growing at a particular rate each year. And finally, on capital, the question is whether we have the capital to support our growth. We absolutely have sufficient capital to support our growth plans. I expect the question will fade to some extent on the back of our dropping the 15% lending growth per annum target, and when you've heard today the pathway to delivering mid-teen returns. But we recognize that we have a better job to do in communicating the capital position.
We will consume capital for a period of time as we continue to grow before becoming capital accretive. So if I just take you through some slides to give you an overview of the group. These are the existing business units we now operate in, and as you can see and know, we operate across a diverse range of large market segments, serving both consumers and businesses. In the green boxes are our consumer businesses. The first one, which we focus on today, is V12 Retail Finance, which, as you can see, had balances of just under GBP 1.2 billion at the end of the half year in June. The business has grown cumulatively by 79%, its balances, in the 2.5-year period to the end of June.
Our Vehicle Finance business provides credit for the purchase of secondhand cars and grew strongly as well over that same period, cumulative growth of 81%.... That has been driven by our new technology investment, which has allowed us to launch a broader range of products and serve a broader segment of customers, and of course, by the significant expansion of our distribution networks. In the purple boxes, we have our two specialist business finance lending units: Real Estate Finance and Commercial Finance. Both of these, again, have continued to grow, and the cumulative growth rates of 16% and 37% are shown on the slide. Total lending in business finance is just over GBP 1.5 billion. Our Real Estate Finance team supports professional landlords and property developers, and our specialist team has many years of property finance lending expertise.
82% of the lending in the property side is for residential investments, financing, and 6% for the, for the commercial investment, sorry. The remaining 12% of our lending is in development finance, the majority of which is on retail properties. However, only 3% of our lending and property is for commercial financing. All property lending is secured against U.K. assets, and at the end of the half year, the Loan to Value is 56% on the portfolio. Our Commercial Finance team provides working capital finance and support for strategic events. Typically, this is secured against receivables, and it's invoice discounting facilities of typically up to 90%. Our specialist team has a very strong track record in the Asset-Based Lending market. On the right-hand side of the slide, finally, in orange, you can see our deposit capability and function.
We only take deposits from consumers, and over 95% of their deposits were fully covered by the Financial Services Compensation Scheme limit, so the balance is below 85% at the half year. We have a full range of products available, from instant access, shorter-term notice accounts, fixed-term accounts, and also Cash ISAs. We've grown our deposit balances to support our lending growth by 33% in the last two and a half years. As the growth rates we've just covered demonstrate, the team has built a track record for delivery and successfully capturing opportunities in each of their businesses. We established positions in our specialist lending markets and have long-standing relationships with introducers as we continue to expand that and nurture those relationships.
Our product innovation and expansion has been a common feature, be that loans for improving the energy efficiency of properties within real estate finance, shorter term fixed rate accounts within deposits, or actually our entry into the vehicle stock funding product, a continual progress of adding products and serving wider customer needs. Our ability to raise deposits and deliver significant lending growth gives us the platform to be confident and continue to move forward and achieve our ambitions. We have a clear plan to continue growing in each of these businesses, but only when it's appropriate to do so. We have grown lending by 45%, net £1 billion additional balances over the course of the last two and a half years. And as I say, that has been delivered despite the fact we've been tightening our credit criteria in quite an uncertain environment.
We've also proven our ability and agility to react to those changing market conditions, and we will continue to do so, conscious that we are seeing both business and consumers impacted by some of the current challenges, and it's appropriate, therefore, that we cautiously grow going forward. We are well-positioned to continue delivering profitable growth. We typically have low market shares in quite large markets, although in the near term, there is no doubt that higher rate environment will have the effect of reducing demand for credit and dampening consumer spending. We're not immune to the impacts of that. You'll have seen in this morning's Q3 trading statement that our lending balance is grew by 1.3% in the third quarter, and they've risen by 14.2% over the 12 months.
We have sufficient capital to support our growth ambitions, and we are clear on a level of loan book scale that is required to deliver mid-teen returns. Rachel will cover that shortly. At that point, as I say, the group becomes capital accretive, and we have different options and decisions to make. We remain committed to our aspirational longer-term vision to be the most trusted specialist lender in the UK. Our core purpose, to help more consumers and businesses fulfill their ambitions, is a common focus in each of our business units. So they're very diverse, but they've got a very common purpose. As you know, we articulated at the half year stage our strategic optimizing for growth priorities, which are to simplify, enhance the customer experience, and leverage our networks.
We've started making good progress and continuing the progress of the last couple of years against each of those. Some examples are shown for each of these on the slide. In the last few years, we've taken a number of actions to simplify the group, automate processes, and simplify our operating model. We've also exited four subscale businesses and become more focused. We've reduced the office space we occupy with our staff by just over 50%, and we also have plans to reduce some of the more expensive space that we have in London. Project Fusion, our cost optimization program, we have increased in the announcement this morning the savings that we deliver from that program by the end of 2024 to GBP 5 million. We also continue to focus on the customer experience. Again, some examples are on the slide.
That includes product expansion and Vehicle Finance to serve the larger and lower-risk prime segment of the market, in addition to our heritage and near-prime lending for vehicles. We've introduced electronic documents in Real Estate Finance to remove paper and speed up processes for customers, and we recently launched our first savings mobile banking app, allowing customers to self-serve, access information on their account, and transfer money, therefore self-serving and reducing the number of calls that come into our call center. So we're looking to just replicate the exact experience we had in doing the same in Retail Finance. And we've also launched our AppTo Pay pilot, offering three months interest-free credit in Retail Finance, and Andy will give you a bit of an update on the AppTo Pay pilot when he talks later.
The Retail Finance team has continued to add new functionality continually to their online self-service portal and has seen adoption increase by customers to 74%, allowing them to drive cost efficiencies. We also continue to leverage the distribution networks that we have. We work with over 1,400 retailers, almost 700 Vehicle Finance introducers, and we are continually seeing the amount of repeat business in both business finance areas, so Real Estate Finance and Commercial Finance, grow as our reputation for responsiveness, speed of decision, and flexibility builds. Everything we do, of course, is underpinned by our technology platform. We've invested in new capabilities, and we have continued to increase process digitalization, replace legacy platforms, and launch new products. In our consumer businesses, we integrate easily with our partners via APIs, allowing us to onboard them at pace.
And we also, in our credit decisions and affordability assessments, make automated decisions to allow quick return to the customer and to the retailer, in the case of V12, the decision that we've made on the credit application. And as has been demonstrated in the last few years, the platform is scalable. 45% growth in lending, a third growth in deposits, and has future capacity to support the growth ambitions we have. You'll hear shortly about the importance of technology in the V12 business that's helped them meet the evolving needs of, and expectations of retailers, but also end customers, allowing them to keep winning market share. So good progress across all of these new strategic priorities we outlined in August.
From the presentations, and the a lot of information you're about to hear, there are really just two key messages we want you to take away. The first is that V12 Retail Finance is an emerging powerhouse and is well positioned to continue winning business and grow its market share. And secondly, we have a new ambition to grow to a net lending book of GBP 4 billion, which is a level of scale that is required, along with some other metrics being aligned, to deliver the mid-teens returns that we set out in 2021, and Rachel will cover that shortly. So with that, let me hand over to Nick Davies, Chief Executive of V12 Retail Finance, so that he can tell you about the journey he and his team have been on from launching the business, scaling it, and continuing to develop it. Nick?
Thank you, David, and good morning, everyone. I'm Nick Davies, and I lead Secure Trust Bank's retail finance business, traded under the V12 Retail Finance brand, which is a business that I originally founded. This morning, myself and Andy Phillips, V12's Commercial Director, will provide you with an insight into the retail finance market and explain how our business has grown into a major player in recent years, thanks to our strong record of profitable growth. V12 has more than 20 years' experience of trading in our specialist market, and today we will look to provide you with a deeper understanding of how V12's focus on interest-free lending has allowed us to produce a high-quality, low-risk loan book, which compares favorably to other unsecured loan products, such as credit cards and personal loans.
You can see on the first slide that, retail finance has grown from being 30% of the group's lending at the end of 2020 to being 37% of the group's lending in the first half of this year. We'll also explain how we've been able to leverage V12's technology and to fully digitalize the customer journey, which has provided an extremely cost-efficient and robust operational platform, which is capable of supporting our future growth ambitions. To give you a better sense of how V12 works with our customers and our partners, I will now show you a short video which brings this to life.
Welcome to V12. We're here to help you with all of your finance needs. Our intelligent application form fast-tracks customers we recognize, and our in-house underwriting team means we can provide fast credit decisions 24 hours a day. In the age of subscriptions, we know customers are more comfortable budgeting monthly and spreading the cost to make things they want more affordable. Offering your customers finance will help maximize your sales and help you reach new customers. Don't just take our word for it; our customers love it, too. We know how to make finance as easy as possible for you to process and as easy as possible for your customers to understand. Our streamlined application form is completely paperless, putting you and your customer in control. It can be accessed from any device at any time of the day.
If we recognize your customer, we'll ask them to check if their details have changed, or if they're new to us, we'll ask them for a few bits of information. We'll send all of the important documents to the customer securely and have experts on hand if they have any questions. Our straightforward integration is designed to integrate and operate in any bespoke configuration. Intelligent retail finance, powered by V12.
... I'll come on to a more detailed explanation of how V12 delivers these services in later slides. However, a key point to stress is that the technology supporting it is proprietary. Originally built by V12's in-house developers more than 20 years ago, we have constantly evolved it in the period since, ensuring that it remains agile and the envy of our competitors. Our technology is one of our core strengths and has been key to ensuring that our proposition meets the ever-changing demands of both customers and retailers, which has been the central pillar of our growth story in recent years. Over the past 20 years of trading, we have earned a reputation as an innovative and reliable specialist lender, which gives us the credibility required to work with some of the biggest names in the retail, the U.K. retail market.
Retail Finance for V12 simply means providing credit for customers at the point of sale to allow them to make purchases from retailers working with V12. Our operating model sees V12 integrate its software via API links into our retail partners, who then use this link to introduce customers wishing to purchase goods from their stores and websites in a seamless and highly efficient way. Once we have undertaken our affordability and credit checks, we are able to provide a credit application decision within minutes, and V12 pays the loan proceeds directly to the retailer, less our charge, allowing the customer to receive their goods. The customer then makes the repayments for their loan directly back to V12 via monthly repayments.
This creates a win-win-win scenario, with retailers able to make more sales, customers able to bring forward purchases with affordable fixed monthly repayments, and allowing V12 to build a loan book providing attractive returns. The retail lending market is predominantly promotional credit, such as interest-free lending, which is a highly desirable product to the consumer due to the fact that it has no hidden charges, and which has also been proven to generate significant incremental sales for the retailers. While V12 has the ability to provide retailers with a full range of products, we've always primarily focused on the provision of interest-free loans. These have traditionally had loan terms ranging from six to 60-month repayment terms. However, our newly launched AppTo Pay product extends the range even further, as it introduces a three-month option.
The charge we make to the retailer increases as the loan term increases, so commercial necessity dictates that the longer term interest-free options are only typically available on larger purchases. Over many years, and after completing comprehensive counterparty checks, V12 has built a distribution network of more than 1,400 retailers. We work with the majority of these on an exclusive commercial basis, and all of these retailers offer interest-free loans to their customers. As can be seen from the slide, interest-free lending made up 90% of V12's volumes during the first half of 2023, with the remaining 10% being interest-bearing loans. Interest-bearing options are offered by retailers in the small minority of sales, where the charge we levy for interest-free is not commercially viable for them to offer due to lower margins on certain products that they sell.
The mechanics of an interest-free loan are very simple for a customer to understand. With fixed monthly repayments starting one month after receipt of goods in the amount of the loan value divided by the loan term, which in this example is 12 months. The commercial relationship between V12 and the retailer means that a charge, known as a subsidy, is made by V12 to the retailer for each loan processed. The charge is deducted from the loan proceeds before they are paid across to the retailer in settlement of the customer purchase. We will provide further detail on the commercial pricing process later in the presentation.
However, it's important to note that if V12 wishes to increase its charges, for example, due to a rise in the cost of funds, then this is managed directly with the retailer and has no impact on the price charged to the customer, which remains interest-free. The unique features of an interest-free loan means it is attractive to customers who don't necessarily need credit to complete the purchase, but who view interest-free as a deal, allowing them to spread the cost of the purchase with no additional charges. V12 are highly experienced in this type of specialist interest-free lending. Credit losses for interest-free loans are materially lower than other types of interest-bearing consumer credit products, due to the fact its ability to attract higher credit quality customers who don't need the credit and who could otherwise potentially pay in cash.
Also, those who are less confident in being accepted for interest-free credit don't tend to apply. In 2019, we saw an opportunity to further de-risk our loan book by targeting even greater volumes of interest-free lending, and the successful execution of this strategy over the past 4.5 years has seen our interest-free loan book mix rise from 62% in 2019 to almost 86% in the middle of this year. Andy will provide further detail on the sales strategy that we deployed to acquire increased volumes of interest-free lending later in the presentation. I previously mentioned, interest-free lending attracts better credit, better credit quality customers, which in turn leads to a lower cost of risk. And one of the key benefits of the strategy is already being seen in the reduction of V12's credit loss impairments over recent years.
Historically, V12's credit loss performance has always been one of our strengths. However, since 2019, the growth in interest-free lending has led to a further improvement in this area, with a significant drop in the loss rates linked directly to our strategy to focus on interest-free lending. Our ability to deliver credit losses lower than other unsecured consumer credit products is linked directly to the unique nature of interest-free lending and the improved credit quality of the customers that it attracts. Our technology platform is at the very center of the business, with the original software developed in-house more than 20 years ago to process some of the first retail credit transactions on the web during the very early days of internet retailing.
In fact, the original developer of that software is still very much part of the business, working as the IT director at V12, and he is here with us in the audience today. He's led a team of developers for more than two decades, overseeing the evolution of the software into its market-leading position and ensuring that it remains at the cutting edge of technology in the retail finance market. The ability to quickly deploy the flexible solutions needed to meet our ever-changing retailer and customer demands, has been one of the key reasons behind V12's ability to grow its market share, as our competitors struggle to match our capabilities in this area.
As the slide sets out, we have a long track record of building a robust system capable of handling ever-increasing volumes of lending, while adding improved levels of functionality to retain both the retailers and our customers, and hence, constantly enhancing our customer experience. This culture of constant evolution is very much part of V12's DNA, and the work to develop new products, enhance functionality, and bolster the resilience of our system simply never stops. Our success in being able to quickly and seamlessly integrate our software with the huge range of different retailer IT systems, covering all of the retail sales channels, is the single most important requirement needed to secure new business contracts with prospective retail partners.
The growth in our new business volumes and acquisition of increased market share are evidence to our ability to meet the requirements of our retailers. However, the software is also customer-facing, as you have already seen earlier in the presentation with the video. Credit applications are processed and decisioned in real time, with automated credit and affordability checks, ensuring that customers access products appropriate to their needs, with the system being available online 24/7, 365 days a year. 90% of applications are decisioned and processed within a matter of seconds, while the remaining 10% are quickly assessed by our credit underwriting teams. In 2017, we launched a customer self-service portal, allowing our customers to manage their accounts with us online, and this feature has been extremely popular with our more than 1 million customers.
Today, we see self-service transactions account for 74% of all customer account activity, meaning the highly digitalized end-to-end customer journey has provided customers with an outstanding experience when dealing with V12. But this has also allowed the business to enjoy significant cost efficiencies. Perhaps the clearest example of this has been V12's ability to maintain its high levels of service to both retailers and customers since 2020, despite a more than 79% growth in our loan book. All of this, but with no increase in our overall staff headcount. I've spoken this morning of V12's growth in recent years, and to provide more detail on that, it's very appropriate for me to introduce Andy Phillips, who's been with the business for more than 8 years, and as our Commercial Director, has been the architect of that growth. Andy?
Apologies. Thank you, Nick. Good morning, everyone. Okay.
... Again, thank you, Nick. Good morning, everyone. Slight technical hitch on the, on the microphones. Following the acquisition of V12 by Secure Trust Bank in 2013, we've delivered very significant new business growth, having progressed from a niche provider, lending GBP 163 million per annum, to major market player, lending GBP 1.1 billion of new business. As you can see, other than a slight blip for COVID in 2020, our growth has been consistently strong, with our new business volumes growing by 55% between 2019 and 2022. 2022 was a particularly strong year for us, with a 46% uplift on the prior year, driven by our success in penetrating the furniture market in particular.
This year's new business performance so far is also strong, and at the halfway stage, we're 15% up on the same period last year. I'll talk more about the reasons for this success in the following slides. As a result of this new business growth, our market share, as measured by the Finance and Leasing Association data, has increased significantly, too, having grown from 8.2% in 2019 to 13.2% in H1 2023. The fall in market share in the COVID year of 2020 was as a result of us taking a prudent approach and tightening our credit risk appetite during a period of significant uncertainty. This was the right thing to do and has certainly helped our credit risk performance, giving us strong foundations from which to continue to build.
Despite the success that we've had in growing our market share, our addressable market of approaching GBP 10 billion per annum is still considerable, so there are still plenty of market opportunities for us to develop. Our tried and tested approach will continue to be applied, and a mid-teens market share is realistically achievable for us. So why have we been so successful, and why are we confident in this trend continuing? To explain this, I'd like to talk to you about some of the differences between V12 and our competitors and the ingredients that have fueled our success. V12 compete with a number of businesses, varying from major banks through to more specialist major lenders to smaller fintechs, brokers, and niche lenders.
Much is made of the large banks' inability to compete with the slick technology integrations of the fintechs, as well as the fintechs' inability to compete with the banks on credit underwriting experience and for the competitive cost of funds required to compete at scale. Both of these observations are generally fair and are certainly a feature of our market. All of our competitors fit into one or other of these categories, with the exception of V12, who fit into both. V12's technology has been the envy of our competitors for well over a decade and continues to be so today. But if we were a small, privately owned fintech, scaling would always have been a challenge. The acquisition by STB changed all of this, bringing banking hygiene factors together with enviable technology, technology which is in-house, proprietary, and easily integrated.
To put that into perspective, this means that while some of our competitors are capable of completing two or three retailer integrations in a year, V12 can complete several in a week. These integrations aren't just limited to retailers either. They also extend to major e-commerce checkout plugins and middleware, enabling the acquisition and onboarding of retailers en masse and the leveraging of third-party systems. A good example of this was our successful integration with ticketing platforms, which opened up an opportunity to penetrate the football season ticket sector, a market that we now dominate, being the season ticket lender of choice for many of the Premier League clubs. In short, V12 and STB's combination of the flexibility and technology of a fintech and a bank funded by retail deposits is incredibly powerful. But these aren't the only ingredients in the recipe.
The reason we've delivered such strong growth in the market over the last 20 years is also because of our cost-efficient operational capability, highly experienced team, a strong consultative sales process, and exemplary levels of customer service. All of these factors combine to present really significant barriers to entry for potential competitors, but most notably, to prevent the ability for those new entrants to scale in the way that V12 has. V12 has a clearly defined process for passing on increases in cost of funds to retailers. 60% of our retailers receive automatically applied pricing adjustments with fluctuations in cost of funds on a quarterly basis. The remaining 40% receive immediate pricing changes. Whilst the process of applying the price increases is applied on the day, the impact will only show through in paid-out business once the retailer delivers the products that they've sold.
This can cause a slight delivery lead time lag, which can be as short as a couple of days or as long as 12 weeks, for example, on sofa deliveries. Pricing is strictly managed, with retail partners understanding the requirements and the mechanism for the adjustments, as well as having agreed contractually to receiving them. Changes to retailer pricing has no impact upon the price paid by the customer, as Nick has already mentioned. This always remains interest-free, and the payments are fixed for the term of the loan. This slide gives you a snapshot of the market sectors in which we operate. When determining market share and rankings, the Finance and Leasing Association split out the markets to clearly define retail store and online credit. This measure excludes markets not addressable by V12, such as credit cards and deferred payment credit, giving us a true ranking against our competitors.
As you can see, the rankings show where V12 features in each sector among the eight. X-axis shows our market position in each of the sectors in the circles, with ranking one being the largest market share and ranking eight being the smallest market share. The Y-axis shows the quality of customer associated with each of these market sectors. The furniture and jewelry sectors represent the highest customer quality, so lowest credit risk, with low, low performance, and the electrical sector represents the lowest customer quality and highest risk and arrears performance. As confirmed by the FLA rankings, V12 currently has the largest market share, ranking one in the furniture and leisure sectors, with leisure including things such as bicycles, gym equipment, and camping equipment, and the third largest, ranking three, in the jewelry sector. So we're strongly represented in these low-risk sectors.
By design, we have a lower share in the higher-risk electrical sector, ranking as only position eight. In fact, the business we write in the electrical sector has reduced from 19% of our volume to just over 0.3% over the last five years. While the business we write in the furniture sector has grown from 20% to 47% of our overall volume. As Nick's already mentioned, with our focus having shifted towards lower-risk sectors, the degree to which interest-free credit is a feature of our loan book has increased notably, too, from 57% in 2018 to 83% in 2022. This has had a corresponding impact on the cost of risk, which has fallen materially over the period.
This shows that our pivot towards lower-risk sectors offering a greater proportion of interest-free lending products has been successful, yielding a high-quality customer and significantly reducing our arrears exposure. This will serve us well in the current economic climate and provides a strong foundation from which to build in the coming years. As I mentioned previously, with an addressable market approaching GBP 10 billion per annum, there are still very significant opportunities for growth available in both our current markets and new sectors, such as home improvements. I previously mentioned what an important differentiating factor our customer service is. We have more than 1 million customers, and they've always been at the heart of everything that we do. As a business-to-business-to-consumer lender, we have two sets of customers to consider: both our retail partners and the end customers to whom we lend.
As you can see, with Feefo and Trustpilot ratings of 4.8 out of 5, our end customers are clearly very happy with the service we provide, and they rank us above both of our closest competitors. As you can see from the reviews here, customers generally tend to credit the ease of use of our application process and how well this integrates with the retailer shopping journey as one of the main reasons why they love our service. We also make it easy for them to communicate with us in any way they choose. So what about our business customers? This slide shows you a few of our retail partners, all of whom are names I'm sure you're used to seeing in the high streets, retail parks, and stadiums of the U.K.
Many of these partnerships have been in place for multiple years now, including those who have occasionally looked to see if the grass might be greener on the other side for a cheaper price elsewhere and have subsequently returned. They also quote the ease of use, and integration of our application platform and how easy we are to work with, as well as the impact made by our highly experienced account managers, whose primary objective is to seek to deeply understand their business and play an integral part in driving their performance as well as our own. Indeed, it wasn't many years ago that retailers cared about only two things when it came to retail finance: price and customer accept rate. While these factors remain high on the priority list, it was V12's focus on technology and customer journey which really changed the landscape.
Now, retailers care just as much about being able to serve all sales channels, from bricks and mortar to online, with the most efficient customer application process possible. Every stage of that process, from the product purchase to the selection of the finance product, right the way through to checkout, is a potential customer dropout point or a point of customer dissatisfaction. In particular, the checkout, be it online or in store, is for the retailer, sacrosanct. V12 have always promoted a champion challenge approach, asking retailers to sample our technology and integrations to compare them with their incumbent. It quickly becomes clear to retailers that conversion through the purchase funnel is notably superior with V12 because of the ease of use of the system and its seamless integration into their shopping journey.
Strong conversion rates, the number of customers successfully completing the purchase journey, and customer experience soon became a priority and are now a major factor for retail partners. Their high levels of satisfaction with V12 are still driven by the fact that we lead the way in this area. At the last capital markets event, you may remember Nick talking to you about our plans to launch our new app-enabled, short-term, interest-free credit product, AppTo Pay. I'm pleased to announce that the pilot was successfully launched in April. Here is a quick reminder of what AppTo Pay is.
Are you looking for a flexible and affordable way to pay in three? Then let us introduce you to AppT o Pay, the new way to pay in three from V12 Retail Finance. AppToP ay lets you spread the cost of purchases over three months when you spend GBP 100-GBP 500 online or in store with selected retailers. Simply download the app, complete a straightforward credit application, and you'll get a quick response to confirm if you've been approved. When making your purchase at selected retailers, choose AppTo Pay at the checkout with no upfront payment or deposit. Go ahead, treat yourself. Apply to become an AppTo Pay customer today.
... 27 partner retailers have now gone live across store channels, and due to the ease of that in-store integration, these existing V12 partners received the facility overnight as it became a new available product type in their existing V12 application portal. Further web launches have now taken place, along with the completion of a number of integrations with checkout plugins. The product has been well received by both retailers and customers, and the pilot phase has presented us with a great opportunity to learn and shape our proposition throughout 2024. We're really, really pleased to have achieved such a successful launch and excited about how the product can develop for our customers. So in conclusion, we've had an incredibly successful few years, building a strong track record for creating profitable growth. We've achieved this while improving our credit quality and cost efficiency.
While our market share has grown considerably, there's plenty more to go at in both our existing and new market segments, with a mid-teens market share being a very realistic ambition. Thank you for listening. I'll now hand you over to Secure Trust Bank's Chief Financial Officer, Rachel Lawrence.
Can everyone hear me okay? Yeah. Thanks, Andy, and good morning, everyone. As David mentioned... Sorry, just get the slide up. As David mentioned earlier, we announced a set of medium-term targets in 2021. These are outlined on the slide, with our main financial goal of delivering a return on average equity of between 14% and 16%. The macroeconomic environment has been challenging, more challenging than expected since we communicated these targets, with the high levels of inflation, rapid increases in Bank of England base rate. But despite this, we have made good progress in delivering on these targets over the last two years. Having achieved our target of delivering loan book growth, we will now replace that particular target.
As I said, having grown lending by 45% in the last two and a half years, and cognizant of market feedback on having absolute growth targets, we are replacing this target to a net lending book of circa GBP 4 billion. The other target we are updating is the cost-income ratio. A GBP 4 billion net lending balance sheet drives a ratio of between 44%-46%. This replaces the previous target to deliver a ratio under 50% and gives a more precise view of the operating leverage that can be achieved at that level of net lending. All our other targets will remain the same. The major of my presentation will focus on outlining the pathway to delivering 14%-16% return on average equity.
This next slide shows, at the GBP 4 billion net lending, the ranges on each of the financial metrics that are required to meet that ROA target. So firstly, net interest margin of between 5.5% and 5.7%, cost income ratio of between 44% and 46%, a stable cost of risk between 1.3% and 1.5%, with a CET1 ratio above 12%. So I will now go through each of these in a little bit more detail. You've heard a lot about our track record of delivering growth in our specialist lending segments. The net loan book has grown from GBP 2.2 billion at the end of December 2020 to GBP 3.2 billion at the end of June 2023. That is GBP 1 billion of net lending growth.
The vast majority of this growth is in our consumer divisions, where we have seen 80% of it, and this has been delivered by gaining market share from 7.5% to 13.2% in retail and from 0.4% to 1.3% in vehicle finance. The broader product range and expanded distribution in vehicle finance provides us with significant opportunity to increase our market share and deliver that at an improved credit, credit quality. In retail finance, market share gains have been achieved by focusing on larger sectors with better quality, lower-risk customers. With the withdrawal of a significant competitor from the market, there is potential for further gains. Our business finance divisions continue to grow, but at a lower rate in comparison to our consumer divisions.
We still have low market shares in all of our markets and have significant opportunity to continue to grow. It's worthwhile to note, to achieve a net lending balance sheet of £4 billion, a much lower level of growth is required than what we've achieved in the last 30 months. Moving on to net interest margin. The rapid increase in base rate and the raising of £90 million of Tier 2 has impacted on our interest margin in the last 12 months. We have previously indicated that the Tier 2 reduced NIM by 20 basis points, but importantly, provides capital for growth, and I'll give you some further insight on that later on.
The rapid increase in base rate has put pressure on margins in the short term, as it takes time to pass through that, those rate rises, rate rises to our consumer divisions, retail in particular, with the lead times for delivery on furniture orders, as the team have discussed earlier. We raise our retail funding by being competitive in the rate tables, which has naturally pushed up our cost of funds. It does appear that those rate increases may have now peaked, and as rates flatten and potentially come down, that pressure will diminish and there is potential for some margin expansion. The other lever we have is the mix of our lending. This slide that I'm showing now illustrates our different NIM profiles across consumer and business, which provides us with mix optionality.
Based on our half year 2023 NIMs in consumer and business finance, shown on the left-hand donut, the group NIM was 5.4%. The other donuts show the impact of a one percentage point mix shift towards consumer lending, and then to a 55-45% mix on consumer and business, which would increase our NIM by 30 basis points. The current strategy is to continue to increase our mix of consumer as a percentage of our overall net lending. I should point out that on each of these scenarios, the group NIM in the center includes the benefit of treasury balances. Containing our cost growth while growing net lending is a key priority and has a significant impact on our returns.
We have demonstrated our ability to achieve this with a 10% reduction in our cost-income ratio in the full year 2022. Our Project Fusion program continues to deliver, and we are now on track to deliver circa GBP 5 million of annualized savings by the end of 2024. The main areas of cost optimization coming from property, supplier, renegotiation of contracts, and digitization. However, high inflation will moderate our ability to deliver that same level of reductions in 2023. But we are confident in continuing to reduce this ratio to the mid-40s%, with increased lending balances providing operational leverage. The group has a track record of prudent lending, with an improving cost of risk in our consumer divisions. There has been a deliberate strategy to change the mix of lending within each of the Retail Finance and Vehicle Finance businesses.
As Nick explained earlier, there's been a step change improvement in the cost of risk in retail from 3% in 2019 to 1.6% at half year 2023, and that has been delivered through the strategy to target better quality customers in retail sectors such as furniture and jewelry. Similarly, in vehicle finance, where we now also serve a lower risk prime customers, we've seen the cost of risk more recently operate at a lower level than it did pre-pandemic. We expect a through-the-cycle cost of risk in the range of 1.3%-1.5%. As David mentioned, we have sufficient capital to support our growth. As you can see from this slide, we currently have excesses above our regulatory minimums, 1.7% TCR and 3.46% of CET1 at the half year.
It's also worthwhile to note that the current capital stack is fully loaded, 4.5% of buffers, which are represented on the chart by the orange bars for countercyclical and capital conservation buffers. As we look forward to the £4 billion net lending balance, we will continue to consume capital, but we'll still retain excesses of 1.17% of TCR, a 2.88% of CET1, and remain above our own internal management target of above 12% for CET1. Additionally, the £90 million Tier 2 raise earlier this year provided us with the ability to lend an additional circa £700 million when fully utilized. In the absence of this Tier 2, that growth would have had to be funded by CET1.
Post the GBP 4 billion net lending target, the group becomes capital accretive, and we will have opportunities to deploy that capital for enhanced returns. So in summary, the pathway to delivering our 14%-16% return on average equity target can be summarized as shown on this slide. Firstly, a net balance sheet, circa GBP 4 billion, with a stable cost of risk, plus a further increase in the mix of our lending towards consumer businesses, with our consumer businesses delivering a higher group NIM, and then assuming that the cost base increases by circa 5% per annum. We believe that we'll deliver our ROAE in the region of 14%-16%, and that's what we've obviously been targeting over the last couple of years.
So I hope this walkthrough has been helpful and provides more clarity on the impact of continuing to scale our lending, improve our cost income ratio, and achieve our return target. Thank you for listening, and I will pass you back to David to summarize and close.
Okay. Thank you. Thanks, Rachel, and also thanks to Nick and Andy for their quite comprehensive presentation on retail finance. I just want to make a few comments ahead of opening it up for questions, and I'm sure given the details being shared today, there will be quite a number.... So we have a clear focus, as you've heard, on our specialist lending businesses, where we've proven we can win and take market share. You've heard it repeated a number of times, but net lending growth of GBP 1 billion, representing 45% growth over the last 30 months or 2.5 years. Although more focused, we remain well diversified.
Our business model has proven to be resilient through quite challenging times, and of course remains a strength of the group, the group that we are so resilient and can deal with, with those changes, challenges, and adapt our plans as required. We have been, as you've heard, improving the quality of our lending, particularly in consumer finance, and you've seen the benefit of that within Rachel's chart and in the one that Nick showed earlier, for the retail finance business. Our optimizing for growth strategic priorities, are guiding us, as we continue to simplify, enhance customer experiences, and extend and leverage our distribution networks. And as you will better appreciate now, V12 Retail Finance is an excellent business.
The team has great experience, strong relationships with retailers, has got a technology advantage, a great track record, and its lending is lower risk than other segments in the unsecured space in the U.K. The team is well positioned to make further market share gains. On our medium-term targets, I'm sure Rachel's explanation of what needs to happen to deliver those mid-teen returns is clearer and has been insightful. Our ambition to grow lending to GBP 4 billion is clearly a key part of the equation. We have significant opportunities to continue growing. We've got sufficient capital to support the growth, to get to GBP 4 billion of lending, and we are moving forward positively and with confidence towards that GBP 4 billion level. We're really excited about the future.
We're really proud about what the team have achieved over the last 2.5 years, and obviously we look forward to sharing with you the progress that we continue to make in the periods ahead at the normal reporting points in the cycle. So with that, we're going to open up to Q&A. We're going to start in the room, but there are quite a number of people joining on the webcast. For those in the room, if you wish to ask a question, please raise your hand first just to grab my attention, and then when directed, press the button for the microphone in front of you. And please just give your name from the firm, if you're from a firm rather than an individual.
And also then just, you know, give your question, and, I'll direct to the appropriate person to answer. If you're online, we do have access to the web chat here. So again, just submit your, name, firm's name, and question, and I'll come to those, after we've taken questions from the room, and just pick up on any that are unique, that have not already been, taken here. So with that, just open up to, anyone who'd like to ask the first question, please. Gary.
Hi, it's Gary Greenwood from Shore Capital. I was just going to ask about competition for V12. I think you'd said, earlier in the year that one of the major competitors had pulled out of the market. So I'm just trying to understand to what extent you've benefited from that, been able to win some of their, their clients. And I guess also linked to that, I'd be interested in just understanding a little bit more about the marketing process, so how you approach customers, retailers, how you effectively replace the competition, and to what extent, you end up being the sole credit provider to those customers, or on a panel? Thank you.
Good. Thanks, Gary.
I'll take that one.
Yeah.
Can you hear me okay? So in terms of the exit of competitor, it's difficult for us to quantify what elements of market share we picked up from that exactly. But I think that the best way to answer that is we don't believe that we've benefited significantly from it. Probably the best way to answer that point. Anything to add to that, Nick?
No, I mean, it's... I'm sure that we picked up some of their ex-partners, but we've not been any material impact. That was a conscious decision by us. The attraction of some of those partnerships wasn't exactly fit for our conditions.
Sorry, the second point was?
The second point, the second point was on, how you attract, customers and how, you know, how you win shares, how do you go about it?
Okay, that's very much the efforts of a direct to business sales team. So we have a field team out in the marketplace, so marketing is incredibly limited in that respect. It's not the way we've ever acquired business. It's so we just have a really skilled team of people all around the UK that build relationships with retailers, and that's how all of our businesses work.
It's very much a relationship-based sales team.
Yeah.
Traditional.
To what extent do you end up typically being the sole credit provider, or do you end up on a panel?
In the majority of cases.
Yeah.
The majority of cases. There are some, especially large retailers, where there will be multiple lenders, all present at the same retailer, but that's, that's a small number. Generally, we're a sole provider. But we welcome instances where we're not, because that's, in reference to the challenge thing I said, we often encourage that, to become a second lender so that we can actually put the tech to the test. It's one of the main ways we tend to grow the business.
The market itself is very much based on a sort of solus relationship with the retailers, and that's as much because the technology integration that they need from the retailer, it's very difficult for them to do that on a multiple basis. So once they've built that relationship and become solus, the larger retailers, from their perspective, more from a supplier concentration risk, will invest in technology at their ends to be able to have multiple partnerships. But that's very much for the larger retailers to be able to do that. And as Andy said, in many instances, from our perspective, it helps us with our own concentration risk as well, which is pretty well spread.
... Thank you. Thanks, Nick. Chris?
Jens Ehrenberg from Investec. Thank you very much. Probably another one for Nick and Andrew. On the technology piece within V12 Retail Finance, how does that compare to the other players in the market when you speak about your proprietary technology infrastructure? And also once you have retail customers integrated, how sticky does that relationship become that they say, "Well, we're part of this," or, "We're plugged into this technology platform now?" How easy is it for them to move from that?
Comparing it to our main competitors, it's the barriers to entry into the market are quite high, and it's really as much to do with the market expertise that you need. You really need to understand how retailers think, and what they really want. Technology won't get you there. It will get you into the room, but you really need to understand what they're looking for. And obviously, we within the senior team have a lot of experience being able to do that. The technology that we tend to see in our main competitors, we would be very confident in saying that it's market leading, and that what we do is perhaps significantly better than some, but marginally better than most.
But it's the ability to integrate it, that's where we really have a point of difference. That's where retailers really look to us to be able to sort of plug and play quite quickly. And then I guess the answer to the second question related to that, once we're plugged into them, from a retailer perspective, I guess one of the insights that we've all learned over the last 20 years for me, is the fact that retailers see retail finance, interest-free credit, they see it really as just a hygiene factor. They're interested in selling what they sell, so all they want is that product to work. And interest-free is very simple to understand, so everyone knows what it is. It's not like there's a very different product out there.
Mm-hmm.
And so for that reason, once they find a partner that works, that gives them the technology, it gives them the right level of service, obviously price is a feature of that as well, it tends to be very sticky for those reasons. And I think that similarly, when you bear in mind how sticky it is with our competitors as well, I think that gives me an even greater sense of pride that we've been able to win those retailers away from them. But it's particularly sticky for me, because of the technology and the lack of effort they want to put into changing their partners once they've got something that works.
Thank you.
Nick, is there any indication you could give of the average length of a retailer relationship?
I mean, it's multiple years.
Yeah.
It's measured in years. We have rolling contracts with all of these retailers, obviously, that we trade under. But these are, I mean, some retailers, we've been dealing with for 10 years plus, and I would imagine that we'll be dealing with for the next 10 years. I think, to save Andy's blushes, the sales team that we have is definitely the best in the market. They're all experts in retail finance. They've all been with us a long time, the average tenure is very long within that team, a lot of experience, and it's very bespoke. Retail finance is very different to perhaps our motor business. It's the same principle, that you're dealing with a partner, but the way the motor dealers work is very different to the way that retailers work.
It's that subtle nuance that really gives us the edge when we're out selling in the market.
Thank you very much for the presentation. It's Steve Keeling at Investec. I just want to understand the relationship with cost of funds falling. I think we're in the camp that that will happen as rates have peaked and come down. How much of the benefit is passed on to, in pricing to retailers, and how... You know, you've indicated how quickly. But how sensitive are your retailers to that pricing?
I mean, obviously everyone's sensitive to price. There's an element of realism when we look at that. I think prices seem more as a hygiene factor in our industry. Retailers know exactly what prices are available. There are a limited number of players in our sector, large enough to deal with some of these retailers. So they do test the water, I think, as Andy said in his presentation. However, I think what that also gives us is there isn't a huge band of price, so we're not competing on price. Price has to be there, it has to be in a band. We're typically able to charge a small premium because our technology is better, and you sort of trade those two things off.
In practice, the rounding up of cost of funds, which we simply pass through to the retailer, we simply pass that through to the retailers. But there are, practically speaking, we have a significant number of retailers on sort of matrix-linked pricing, so it simply goes up in direct correlation to how much cost of funds has been going up in the market. So to that extent, it sort of goes up and comes down directly in line with cost of funds. The other half, which is typically the larger retailer partners, the smaller retailer partners, where we will again look to pass on cost of funds, there are opportunities to sort of benefit from some of those falling cost of funds as the market comes in-...
As the rates sort of drop down, how much that will, or how, how much the market would allow us to do that remains to be seen, to be frank, because obviously there's been no movement in interest rates for 10 years, so it's very difficult to talk about the current environment. But like I said, I think there will be opportunities to do it, but not on a huge scale. It's-
Okay, so your book's not sensitive really, is what you're saying?
No, I mean, there's a time delay in passing it through-
Of course.
Originally to that.
Yeah.
Certainly, because we priced today for a deal that won't complete for three months, if that's-
Yeah.
Three months.
And sorry, last question, just a matter of interest. People that take interest-free, I mean, I'm sure we've all been offered it-
Mm.
-when we've walked in to buy something. Do they tend to just hold it to term, just pay every month to term, or do they pay off much earlier?
Um-
What's your experience on your books?
I think the accountants of this world hold it to term because they realize the benefit.
Okay.
From that. But I think the reality is, most of them hold it to... So we've been doing this for so long.
Yeah.
Literally lent GBP billions on different terms.
Yeah.
You can pretty much predict what the real term of that loan is going to be, and it will be quite close to.
Yeah, I was just, yeah, so I have the Chairman of your board, but that's where I was.
Yeah.
Sorry.
Just add to that. The behavioral lines as contractual are, are pretty aligned. One month, two months maybe.
Gotcha. Okay, thanks. Thanks.
Anyone in the room? We have a few online. Okay, we've got a few online. So thanks, thanks for those. Nick, one I'll, I'll direct to you, just to give an indication that... Well, the question is: What's the effect of interest rates on interest-free lending once fees paid by retail, retailers are considered? So, I mean, I think probably just giving an indication of the sort of gross yield currently would be sufficient on average in your business.
Yeah. Yeah.
Well, just, yeah, you can give an indication.
I mean, it, it varies by term. But it'll be into the low double digits, I think is right to say. So the, the kind of gross yields will obviously be affected by the cost of funds. We'll, we'll push that out, and then as complete, they eventually come down, and so we move back down again, similar to the, the answer I gave to the last question. It's dynamic to that extent, but they'll, they'll move up directly in line with the current. I think now, new business that we're introducing into the book this month, for instance, will be around 12%. I think that's a kind of indicative of where we're at, but.
Okay, thanks. Got a few of those for you, so I'm delighted to be passing them on. What percentage of lending is from online sales as opposed to in-store? And does it make any difference to the NIM or impairments performance?
I'll leave out the answer that one.
So on the mix between in-store and-
Yeah. So in terms of the mix, that's over recent years switched much more towards store base. So sort of more 70, 65, 35 these days in favor of store.
Which is reflected in the furniture.
Which is reflected in the furniture market exactly, because so much of it is store-based. In terms of do those customers look different? Yes, they do. Web customers do look different to store customers, typically speaking, but again, that varies greatly from one retailer to another. And I would say that the retailers and the sectors that we are in, that variance is much, much less than it might be in some of the higher risk sectors, like for example, consumer electronics.
Okay, thank you. And actually, just a good segue actually into another question online. The V12 Finance section has a useful slide showing credit quality versus market share. How large is the cost of this differential versus from a low-quality segment to a higher risk segment? And what drives the difference in the payment quality between segments, which is obviously down to the different customer circumstances and, you know, why they're buying credit versus do they need to buy on credit. Is there anything you could give a sort of indication of the cost of risk between some of your low-risk furniture sectors, for example, versus I think you had in the far right-hand side electricals, just from some past experience, just indicatively?
Yeah. So I mean, as this, I think it was the slide Andy had, the different market, where the different markets sat in relation to risk. So electrical, I think, was at the extreme end of it. And the reason that electrical sits there is because electrical goods have very little margin in them, so therefore, they can't afford to offer interest-free. That's why you rarely see interest-free on electrical goods. What that means is, typically, electrical goods are sold on interest-bearing credit, which is why the credit quality that it attracts is lower. So that's the kind of premise that is the reality of what we're dealing with. In terms of the sort of comparable loss rates, the other thing you need to bear in mind, of course, is the longer the term, the higher the risk.
It's a simple function of how long customers owe you money for. But generally speaking, if you look at interest-free lending through the cycle and across all different sectors, you will typically see loss rates. I mean, they can be as low as 0.5%, but they'll be in the range of 1%-2% as a general rule. I would say that's the typical interest-free lending. Whereas if you're looking purely at the interest-bearing segment of customers that you would attract, working perhaps in the electrical sector, priced for a reasonable APR. So we're talking about a sensible risk appetite or a kind of a risk appetite that an operation like ourselves would look at. You're probably looking at loss rates in the region of 6%-8%, I would say.
That's the sort of difference in terms of losses. Obviously, the yield on those products would be different to reflect the fact that there's a significant difference in the loss rates.
... Thank you. So there's a broader question beyond V12. Can you talk about your market share progress in the past few years and future targets for the business segments? I, I can pick that up. I mean, Rachel did mention the performance in Vehicle Finance, where market share has gone from 0.41% to 1.3% over the last few years or so. It's a very large market, particularly now that we've opened up to serve the prime segment as well as the near prime segment. So we'd always expect our market share to be lower, but clearly at that level, significant opportunity for growth.
It's obviously much harder in the business finance areas, so in Commercial Finance and Real Estate Finance, to answer the question of what is the market size, and therefore, what's your share? So we, you know, we don't tend to do that. It's just much easier when you've got, you know, clear published data on a regular basis with consumer businesses to share that with you. But clearly, we've got just over GBP 1 billion, near GBP 1.2 billion lending. In Real Estate Finance, you know, there's over GBP 1 trillion of property lending in the UK, so clearly plenty of opportunity, but we're also seeing a subsegment of that total market. And yeah, we don't give out forward forecasts on business unit targets.
There's a question: What is the timing when we can expect the GBP 4 billion loan book to be delivered? Again, I can cover that off. I think what we've tried to do today by having listened to the feedback about having a specific level of lending book growth every year, we've taken on board the feedback on that, and we've replaced it with the GBP 4 billion ambition. I think in the current economic environment, it would be appropriate not to be too definitive about when we'd be looking to deliver that GBP 4 billion level. I mean, you can look at some of the analyst views that are available, and we wouldn't actually be too out of line with that view.
But we don't want to be wedded to saying it's going to be this amount of that extra GBP 800 million in the next 3 months, 6 months, 9, 12, et cetera. We just want to make sure we're doing the right things, underwriting appropriately when it's prudent to do so. And I think you can take we have a track record from what you've heard today of delivering strong levels of growth and doing so prudently. So no specific timing given on that. On the 1,400 retailer relationships, is there a view on what the size of the market is by number of retailers that you could serve? And second question, what's the concentration within, say, your top 10 retailer relationships?
I think the answer to the first one is there's a lot of retailers.
Yeah, there's a number, right?
But it's almost like the law of diminishing returns. So we deal with a wide range of retailers, ranging from the very small to the very large. The very large retailers we have, as we were saying earlier, typically a shared relationship in terms of other lenders sitting alongside us, which is attractive to us because we don't want that concentration risk. I would say that there's probably... If we have 1,400 relationships, I could see us growing the business to acquire 2,000-2,500 relationships, but you would just be dealing with a lot more smaller retailers.
One of the ways that you can achieve that without creating a huge amount of operational cost to link and manage those relationships, because obviously we do monitor them and work with them quite closely to make sure they're appropriate partners for us, is to work through aggregator sites and brokers and whatever else, which we typically don't do at the moment. So it's something that we will, well, we have looked at in the past, but I think we'll probably look at that again in the future. In terms of concentration risk, I'm just wondering what's our largest today?
Largest client concentration risk, about 14% of what we do.
So we're pretty well spread. We very consciously didn't want to build the business when we started the growth phase some years back, off the back of a single, very small number of relationships. So we have a very broad spread of it. Even the 14% concentration in our largest partner today, that's only actually broken through 10% recently, as we kind of got into a very big growth phase. But we're very well spread across a number of different sectors, and I think that sort of sets us in a good place going forward for the next kind of phase of growth that we're hoping to achieve.
Okay, thanks. And just one final one on V12 online. Could you comment on your product and how it compares to the likes of a new entrant like Klarna? I mean, I'm assuming it's a question really about AppToPay. Andy, would you like to pitch in?
Sure. So in terms of how it compares, it's designed to be much more of a retailer-focused product. So probably, there are a number of ways you would distinguish it, but for me, the main one is Klarna-style products are very much a consumer-focused product. So they are marketing-led. They're marketing to find consumers to drive into that consumer-facing product. AppToPay is different to that. AppToPay is designed with retailers in mind as well as the end consumer, which is a good fit with our business model. One of the things that the Klarnas of the world and others wouldn't have had in the early days would have been the retailer relationship. So what they've done is acquired customers in a way to lure the retailers.
Obvious thing for us was to do it the other way around because we already had a significant estate of retailers. So it's been built with those retailers in mind, and that's the differentiator. So there's more reasons why a retailer would choose to promote it.
Thanks, Andy. Any last questions in the room before we... Okay, thank you. Well, listen, thank you again for joining us, today. I hope you find the, the presentations, informative and insightful. Two key takeaways, as I said earlier, V12 Retail Finance is on a, you know, fantastic trajectory and on its way to building its market share further and getting to the mid-teens level seems eminently, feasible in the near term. And our other businesses continue to grow as well and will be important factors in building up to that GBP 4 billion level. The timing, as I say, you know, we're not defining. We'll only grow when it's appropriate to do so, and I hope that you take comfort from that.
And we are on that way to that GBP 4 billion, which as Rachel has outlined, is the level required to generate the return on average equity target that we set out a couple of years ago, assuming the other landing spots and ranges that she outlined, you know, are in the right place. And we do have, as Rachel demonstrated, sufficient capital to fuel the growth to get to that level. Beyond that, different options to consider. But listen, we thank you again for coming. Hopefully, you've enjoyed the session, we've answered the key questions that you had, and we look forward to sharing more with you as we progress. So thank you again.