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Credit Cards - UK - August 2015

Published By :

Mintel

Published Date : Aug 2015

Category :

Banking

No. of Pages : N/A


Credit card issuers who are considering scaling back their customer rewards in order to offset a reduction in interchange fee income should heed the warning of Mintel’s research. Around one in five credit and charge card holders would either use their card less or stop using it altogether if their provider withdrew the rewards they currently offer.

Overview

Executive Summary

The market
Rise in credit card borrowing…
Figure 1: Forecast of gross credit card lending, at current prices – Fan chart, 2010-20
and spending
Balance transfer market hots up
Low base rate and fall in bad debts improve profitability
Reduced income from interchange fees could increase cost of borrowing
Key players
Barclays and LBG have the largest credit card customer bases
Figure 2: Estimated group (volume) share of UK credit and charge card market, May 2015
The consumer
63% of adult internet users own a credit card
Figure 3: Ownership of credit and other payment cards, by type and number owned, May 2015
76% of credit and charge card holders manage their account online
Figure 4: Channels used for account management, May 2015
27% have a credit or charge card because of the cashback or rewards offered…
Figure 5: Reasons for having a credit or charge card, May 2015
and 75% of these would use their card less or not at all if the perks were withdrawn
Figure 6: Likely response if card issuer withdrew cashback or other rewards, May 2015
47% still had a balance owing after making last monthly payment
Figure 7: Amount still owing on credit card after last monthly payment, May 2015
18% with credit card debts predict it will take over two years to clear their balance, while 3% can’t envisage paying it off
Figure 8: Length of time expected to take to clear credit card balance, May 2015
Within the past year, 13% of cardholders either reached or extended their credit limit
Figure 9: Credit and charge card applications, extensions, transfers and missed payments within the past 12 months, May 2015

Issues and Insights

Learn the lessons of the past
The facts
The implications
Meeting the needs of the mobile consumer, with a personalised service
The facts
The implications
Beware of cutting back on rewards
The facts
The implications

The Market – What You Need to Know

Greater appetite for credit card borrowing and balance transfers
Stable credit card penetration
Debit cards dominate non-cash payments
Increase in online and mobile payments
Strong growth prospects
A stronger economy drives growth in market
Cap on interchange fees prompts some card issuers to scale back the rewards they offer to customers
Most credit cards are now applied for and managed online

Market Size and Forecast – Credit Card Lending

Net credit card lending rises further
Figure 10: Gross and net credit card lending (non-seasonally adjusted), 2010-15
Strong growth forecast
Figure 11: Forecast of gross credit card lending (non-seasonally adjusted) – Fan chart, 2010-20

Size of the Payment Card Market

Credit and debit cards in issue
Figure 12: Number of debit, credit and charge cards in issue, 2001-14
Size of the cardholder customer base
Shift from cash to cards continues
Figure 13: Share of consumer payment volumes, 2014

Card Spending Patterns

Growth in credit card spending
Figure 14: Volume and value of credit and debit card purchase transactions, 2010-14
Medium-term outlook for UK card purchases
A slow drift away from cards as a source of credit
Overseas transactions
Shift online gathers pace
Surge in contactless payments
Cash advances on credit cards grew 6% in 2014
Balance transfer activity strengthens as card issuers increase terms

Market Drivers

Improved economic backdrop drives credit card spending and borrowing
Credit cards accounted for 73% of gross unsecured lending in 2014
Figure 15: Gross consumer credit lending, by sector (non-seasonally adjusted), 2000-14
Consumer credit net lending has risen over the past two years
Figure 16: Net consumer credit lending (non-seasonally adjusted), 2000-14
People are generally feeling better off
Figure 17: Personal financial situation, May 2012-May 2015
Total credit card debt outstanding increased 7% in 2014
Figure 18: Amount of credit card and other unsecured lending outstanding (non-seasonally adjusted), 2000-14 (at year end)
Credit card write-offs continue to fall
Figure 19: Annual write-offs of lending to individuals, by sector, 2005-14
Card issuers enjoy a period of improved interest margins
Figure 20: Official bank base rate, three-month LIBOR and effective overdraft, personal loan and credit card interest rates (monthly average), January 2008-May 2015
Impact of EU ruling on interchange fees
FCA investigates credit card complexity, fairness and transparency
New payments regulator
Growing cost of card fraud, driven by fraudsters targeting customers and rising incidents of cybercrime
Figure 21: Annual plastic fraud losses on UK-issued cards, 2008-14

Channels to Market

Current account providers have a significant cross-sell advantage
49% of cardholders applied for their credit card online
Figure 22: Channels used for card application, May 2015
76% manage their card account via online or mobile banking
Figure 23: Channels used for account management, May 2015

Key Players – What You Need to Know

A crowded marketplace
Barclaycard remains on top
Tesco Bank bolsters its position with current account entry
Capital One adopts a risky strategy
More products launched to cater for the non-prime segment
Credit card issuers spend £95 million annually on above-the-line advertising

Market Share

Barclaycard tops credit card rankings by a clear margin…
Figure 24: Largest credit and charge card providers in the UK, by share of customers, May 2015
but on a group basis, it shares the top spot with LBG
Figure 25: Estimated group (volume) share of UK credit and charge card market, May 2015
Two card schemes dominate

Competitive Strategies

Barclaycard: still the number one credit card brand and leading contactless technology innovator…
by launching new wearable devices…
streamlining the customer experience…
and via strategic acquisition
LBG sees 15% increase in balance transfer volumes during 2014
Retailers make further inroads
Capital One at risk of losing market share?
Nationwide launches “Fairness Campaign”
Credit builders muscle in
American Express: strong on loyalty

Brand Communication and Promotion

Credit card adspend stabilises
Figure 26: Recorded above-the-line, direct mail and online display total advertising expenditure on credit, charge, store and affinity cards, 2011-15
Rise of social media
Direct mail remains the offline channel of choice for card issuers
Figure 27: Recorded above-the-line advertising expenditure on credit and charge cards, by media type, 2013-15
Barclaycard continues to invest the most in above-the-line advertising
Figure 28: Top 17 above-the line, direct mail and online display advertisers of credit and charge cards, 2013-15
Data coverage and methodology

Brand Research

What you need to know
Brand map
Figure 29: Attitudes towards and usage of selected brands, May 2015
Key brand metrics
Figure 30: Key metrics for selected finance brands, May 2015
Brand attitudes: Sainsbury’s Bank is good at rewarding loyalty
Figure 31: Attitudes, by brand, May 2015
Brand personality: MBNA, Capital One, HSBC, Lloyds Bank and NatWest have some work to do to shake off negative brand connotations
Figure 32: Brand personality – Macro image, May 2015
American Express is closely aligned with prestige
Figure 33: Brand personality – Micro image, May 2015
Brand analysis
American Express and Barclaycard
MBNA and Capital One
Virgin Money, First Direct and Sainsbury’s Bank
Santander, NatWest and Lloyds Bank
HSBC

The Consumer – What You Need to Know

Decline in proportion of people owning two or more credit cards
The over-65s are most likely to have a credit card, but least likely to owe money
Around half of all cardholders have an outstanding balance…
and just half of these expect to pay off their debt within a year
14% have a credit card in order to make use of a 0% balance transfer deal
Card issuers will lose customers if they stop offering cashback and other rewards
Missed payments affect a small proportion of cardholders

Payment Card Ownership

Debit cards are the most popular payment cards
Figure 34: Ownership of credit and other payment cards, May 2015
Most people own more than one type of payment card
Figure 35: Payment card ownership – Cross-analysis, May 2015
39% of credit card holders own two or more credit cards
Figure 36: Number of credit cards owned by credit card-holding customer base, May 2015
Multiple credit card ownership has declined over the past four years
Figure 37: Trend in credit card ownership, 2012-15
There’s also been a slight reduction in people owning two or more store cards
Figure 38: Trend in store card ownership, 2012-15
Charge card ownership has remained broadly stable over the past three years
Figure 39: Trend in charge card ownership, 2012-15

Reasons for Credit Card Ownership

27% have a credit card because it offers cashback or other rewards…
Figure 40: Reasons for having a credit or charge card, May 2015
and 40% of these would stop using their card if the rewards were removed
Figure 41: Likely response if card issuer withdrew cashback or other rewards, May 2015

Level of Credit Card Debt

47% of cardholders paid off their balance in full when making their last monthly payment
Figure 42: Amount still owing on credit card after last monthly payment, by number of credit cards owned, May 2015
Age often dictates behaviour
A third of credit card borrowers think it will take them over a year to pay off their debt
Figure 43: Length of time expected to take to clear credit card balance, May 2015
7% with three of more cards expect to never clear their credit card debt
Figure 44: Length of time expected to take to clear credit card balance, by number of credit cards owned, May 2015
40% of cardholders who owe at least £5,000 expect to take more than three years to repay their debt, if at all
Figure 45: Length of time expected to take to clear credit card balance, by amount of credit card debt outstanding, May 2015

Recent Credit-related Activity

Within the past year, 12% of cardholders transferred their balance to a new card…
and 13% reached or extended their credit limit
Figure 46: Credit and charge card applications, extensions, transfers and missed payments within the past 12 months, May 2015
Payment defaults affect one in six cardholders owing £2,000+
Figure 47: Credit and charge card applications, extensions, transfers and missed payments within the past 12 months, by level of credit card debt, May 2015

Appendix – Definitions and Abbreviations

Product definitions
Abbreviations

Appendix – Market Size and Forecast

Forecast of gross credit card lending
Figure 48: Forecast of gross credit card lending (non-seasonally adjusted), at constant and current prices, 2015-20
Best- and worst-case scenarios
Figure 49: Forecast of gross credit card lending – best- and worst-case scenarios, at current prices, 2015-20
Forecast methodology
Fan chart explanation

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