A growing divide is emerging across the UK consumer lending sector, with larger lenders experiencing substantially fewer late payments than their mid-market peers, according to new research from Aryza and GoCardless. Findings from the report suggest lenders are navigating the same economic challenges with markedly different outcomes.

The research, based on a survey of 250 senior lending, collections, and risk leaders, found that the average proportion of loan repayments arriving late increased from 9.3% to 11.5% over the past 12 months, representing a 24% rise across the market. However, beneath the headline figure, the market appears increasingly divided.

UK lenders no longer moving in lockstep:

While the wider market has seen late payments increase, the largest lenders surveyed have largely succeeded in keeping late payments rates stable.

Lenders with annual turnover exceeding £250 million reported just a 1% relative rise in late payment rates (8.8% in 2026 vs 8.7% a year earlier). In contrast, mid-market lenders – with turnover between £25 million and £249.9 million – saw late payments climb to 12.2%, a relative rise of up to 28% compared to a year earlier

Across all lender sizes, affordability at origination, wider macroeconomic conditions and borrower financial hardship were cited as the leading causes of late payments.

Technology investment mirrors stronger collections performance

The report points to significant differences in collections maturity across the market.

While almost all lenders (94%) report using AI somewhere within their collections process, fewer than one in three (29%) say AI is fully deployed and embedded into day-to-day operations. Among lenders with turnover above £250 million, that figure rises to 59%, compared with just 21-23% among mid-market lenders. This greater level of AI maturity among larger lenders coincides with a marked difference in payment performance, as they are the only group whose late payment rates remained broadly stable over the past 12 months, while the mid-market saw increases of around a quarter.

While the research does not establish direct causality, it highlights a stark correlation: the organisations reporting the strongest late payments performance are also significantly further ahead in deploying AI and automated collections. The findings highlight an operational maturity gap between larger and mid-market lenders, raising questions around the role technology, automation and collections processes could play in helping lenders respond to growing repayment pressures.

Rather than relying on any single technology, the findings suggest larger lenders are taking a broader approach to operational resilience, spanning collections technology, customer engagement and payment infrastructure.

Tom Metcalfe, Director, Global Partnerships at GoCardless comments:

“The biggest takeaway from this research is that lenders leading the market aren’t standing still, and are continuing to invest in operational capabilities that support better repayments outcomes.There is an opportunity for mid-market lenders to close the gap by taking a broader view of the repayment journey – from collections technology through to the payment methods they offer customers.”

Motor finance sees sharpest rise in late payments, up 44% year-on-year

Motor finance lenders are facing the sharpest rise in late payments across the consumer lending market. Late-payment rates in motor finance increased 44% year-on-year, rising from 9.8% to 14.1% – the largest increase of any lending category. By comparison, unsecured personal loans saw late payments rise 22% and Buy Now, Pay Later (BNPL) lenders recorded a 16% increase. Separately, the research found that motor finance lenders were the least likely to report having AI fully deployed in their collections processes (18%), further highlighting the differences in operational maturity across lending sectors as firms respond to rising repayment pressures.

Collections challenge goes beyond rising volumes as capacity and compliance pressures mount

The research found that lenders are spending an average of 8.3 days recovering late payments, compounding operational burdens for collections teams.

Yet lenders say their biggest collections challenges are not simply the number of cases. Staffing capacity and cost (42%) and regulatory compliance (41%) ranked ahead of high volumes (33%) as the most pressing issues facing collections operations today.

This suggests that many organisations are increasingly focused on operational efficiency, compliance and customer outcomes rather than simply processing a growing number of late payments cases.

Paul O’Sullivan, Global Head of Banking & Lending at Aryza, comments:

“What this research shows is that lenders can be exposed to many of the same economic and affordability pressures yet experience very different outcomes. The gap between larger and mid-market lenders suggests that how collections operations are structured, supported and scaled is becoming increasingly important.

For lenders facing growing repayment pressures, the challenge is not simply handling more cases. Capacity, compliance, and the ability to engage customers effectively are all significant considerations, and this is where technology can play an important role.

Adoption is widespread, but there is still a considerable gap between experimenting with AI and embedding it effectively into day-to-day collections. The opportunity for lenders is to focus on where technology and automation can genuinely increase capacity, support more personalised engagement and enable better customer outcomes, while ensuring human support remains available when it is needed.”

Payments innovation moves up the strategic agenda

The survey also suggests that lenders are looking beyond collections technology alone. Alongside investment in operational efficiency, many are exploring new payment methods that could help make repayment easier for borrowers while improving collection performance.

Almost all lenders surveyed (98%) expressed interest in lender-initiated payments, while 44% said they would be keen to implement Recurring Pay by Bank as soon as it becomes available. Interest was highest among larger lenders, with 65% saying they would seek early adoption.

The survey suggests lenders are increasingly viewing payment collection as part of a broader strategy to improve collections outcomes.

Recurring Pay by Bank gains traction among market leaders

When asked about the biggest benefits of Recurring Pay by Bank, lenders prioritised customer outcomes over operational improvements.

Improved customer experience was the most commonly cited benefit (46%), followed by better conversion rates (37%), improved cash-flow predictability (36%), faster payments (33%) and greater payment visibility (32%).

“With the next wave of Recurring Pay by Bank set to roll out across additional sectors, including personal loans and motor finance, lenders in some of the hardest-hit parts of the market will soon have the opportunity to put that interest into practice. The strong appetite we found for lender-initiated payments – with almost every lender surveyed being interested, and 65% of the largest lenders wanting to implement Recurring Pay by Bank – suggests the industry is increasingly looking for ways to reduce friction for borrowers and improve repayment outcomes. Ultimately, a payment that works is a payment that doesn’t become a late payment,” added Tom Metcalfe, Director, Global Partnerships at GoCardless