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UK Plastic Cards 2009

Datamonitor
October 26, 2009
150 Pages - SKU: DFMN2482224

Abstract Table of Contents Related Reports

Countries covered: United Kingdom

Introduction

Published annually, UK Plastic Cards provides an overview of the key trends and issues facing the UK card market. Intense competition, rising write-offs, and a deteriorating economic situation have challenged issuers in 2008 and 2009. This report provides in depth coverage of these and other issues, along with full data for the credit, charge, debit, private label, and prepaid card markets

Scope

Includes comprehensive data coverage of the UK cards market from 2004 to 2013, including credit, debit, charge, private label and prepaid cards
Forecast overview including key market drivers and level of influence of these, under a neutral, optimistic, and pessimistic economic scenario
Analysis of the impact of the recession and its implications for the cards sector, including coverage of consumer card behaviour and attitudes
Case studies of new product development and strategies being employed globally by key card issuers as a reaction to the downturn

Highlights

The UK plastic card market has undergone a turbulent 18 months as a result of both long term difficulties and new challenges posed by the recession. Despite this, the growth in the overall value of transactions across all card types remains positive, reaching £579.5 billion in 2008. This growth was driven primarily by debit card spending.

The economic environment for cards has taken a beating as a result of the downturn with issuers faced with a drop in both transaction values and balances outstanding. These pressures are likely to continue for some time as consumer spending continues to be subdued by an uncertain economy and rising levels of unemployment.

The recession is exacerbating long term trends of a shift from credit toward debit. Under a neutral economic scenario debit cards transaction values will reach £470 billion by 2013, with a CAGR of 2.9%. Credit will grow to reach £119.5 billion over this same period with a CAGR of 1.5%. Debit volumes at the POS alone will grow by a CAGR of 8.3%

Reasons to Purchase

Understand the size and composition of the UK cards market and understand what the future holds under a comprehensive range of economic scenarios
Comprehend the recession's impact and how the market is reacting with up to the minute data and the latest analysis of emerging trends
Plan your strategy effectively with case studies and analysis of how key players are adapting to a rapidly changing dynamic environment

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Overview: Catalyst; Summary; Methodology; Executive Summary; UK Plastic Card Market in Review and Future Outlook; The UK card market grew by a CAGR of 10.0% from 2004 to 2008, but growth will be weaker to 2013; Economic indicators give mixed indications for the future of the UK cards market; Market Statistics and Key Trends; The number of credit card holders is falling; The total number of cards in issue remains flat, with only debit showing growth; Card scheme market shares have been volatile over the past five years; MasterCard now leads the credit card market; Forecasting the UK Payment Card Market; Despite the recession the UK cards market will continue to grow through to 2013; Competitor Market Shares and Developments in the UK Plastic Card Market; Lloyds Group is now the largest credit card issuer by cards in issue; Lloyds Group holds a 21% share of credit card balances outstanding; Product Innovation in the Downturn: Lessons for UK Issuers; Datamonitor has identified six strategies for issuers to maximize their performance in the downturn; There are two focus areas for issuers trying to improve the profitability of their business; Within this there are six potential strategies that can help issuers to address their pain points; Table of Contents; Table of figures; Table of tables; Introduction; UK Plastic Cards 2009 is structured in six chapters; UK Plastic Card Market in Review and Future Outlook; Cards grew by a CAGR of 10.0% from 2004 to 2008, but growth will be weaker to 2013; Economic indicators give mixed indications for the future of the UK cards market; Inflation is no longer a worry for the cards market; Inflation may be easing, but unemployment continues to rise; Write-offs continue to be a problem for cards, a problem made worse by unemployment; Due to the recession consumer behavior with cards is turning negative for issuers; Both balances outstanding and transaction values are showing a decline; While dropping balances outstanding, remain surprisingly robust despite the downturn; Consumers are also using alternative forms of credit to help make ends meet; Changes in overdraft balances tend to follow similar patterns to changes in credit card outstandings; In line with long term trends, balance transfers are decreasing; Market Statistics and Key Trends; UK cards are growing as a share of the total payments market; The value of all card transactions is rising; The total number of cards in issue remains flat, with only debit showing growth; The decline in private label cards may be stabilizing; The number of credit card holders is falling; The variety of cards by type is polarizing into more premium and standard cards; Despite static card numbers, transactions are growing with over 10.1 billion in 2008; Transaction values are growing as a result of the growth of debit; Charge cards hold the highest average transaction value and shows signs of continuing growth; Purchases account for 66.3% of all UK card transactions; Debit cards showed the highest rate of growth in transaction value by type between 2004 and 2008; Credit transactions are dominated by purchases; Charge cards are seeing growth in transaction values, driven primarily by business use; Card scheme market shares have been volatile over the past five years; MasterCard now leads the credit card market; The charge card market has seen American Express' historic lead solidified into a dominant position; The increase in POS terminals have helped drive the growth in transaction volumes; The Independent sector continues to drive growth in ATM's; The number of fraudulent transactions continues to rise; The successful implementation of chip and pin has led to an increase in card-not-present fraud; The value of CNP and counterfeit card fraud continues to rise, driving up overall fraud; Forecasting the UK Payment Card Market; Despite the recession the UK cards market will continue to grow through to 2013; Datamonitor forecasts annual growth in the value of payment card transactions of 2.4% to 2013; Datamonitor's forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products; Datamonitor bases its neutral view on forecasts provided by the Treasury; The credit card market is likely to remain flat through to 2013; Datamonitor forecasts annual growth in the credit card market of 1.1% to 2013; Under an optimistic scenario Datamonitor forecasts an annual growth of 3.1%; Under a pessimistic view of future economic performance, Datamonitor forecasts an annul growth of -1.2%; Debit cards will see the most positive levels of growth over the next five years; Datamonitor forecasts annual growth in the debit card market of 2.9% to 2013; The charge card market will remain flat through to 2013; Datamonitor forecasts that the charge card market will see marginal annual growth of 1.1% to 2013; Private label cards will decline through to 2013, but at a slower rate than in the past; Datamonitor forecasts that the private label card market will see an annual decline of -5.7% to 2013; Competitor Shares and Developments in the UK Card Market; Lloyds Group is now the largest credit card issuer by cards in issue; Barclaycards remains by far the dominant credit card brand; Barclaycard has the largest portfolio of 'primary' cards; The number of standard and premium cards by brand highlights the largest issuers' mass market strategy; Usage and primacy rates are driven by card features; The number and value of transactions per issuer is broadly in line with market share; Usage rates are low for most cards despite high rates of primacy; Lloyds Group has the highest value of balances outstanding; Not surprisingly, Citigroup and MBNA continue to have the highest balance per card on average; Repayment rates are significantly higher for cards providing incentives for transacting; The debit card market is led by the major high street retail banks; Barclays' leads the market, with 9.9 million debit cards in issue; Debit is growing strongly in day to day use; Santander now leads the private label card market; Private label usage rates are likely to drop as a result of the recession; Prepaid cards have strong growth potential, but are likely to remain niche; Barclaycard, Tesco Personal Finance and Santander have performed strongly in 2009; Barclaycard is pushing forward in creating incentives for card usage; Barclaycard is leading the market in developing contactless payments; Barclaycard is developing a new loyalty program; Barclaycard is forming strategic partnerships with key brands and service providers; Tesco Personal Finance is poised for strong growth as it moves to become a bank; Santander will expand in the cards market, to the detriment of MBNA; Card issuers must choose between diversifying and refocusing on core strengths; Product Innovation in the Downturn: Lessons for UK Issuers; Datamonitor has identified six strategies for issuers to maximize their performance in the downturn; There are two focus areas for issuers trying to improve the profitability of their business; Within this there are six potential strategies that can help issuers to address their pain points; The Datamonitor Financial Services Megatrends Framework is an excellent tool for identifying potential strategies; The Megatrends Framework can be used as a key tool in shaping product strategies; Reducing cost through rationalizing out unprofitable customers is delicate but nevertheless important; American Express offered to pay customers to leave in order to close a number of unwanted accounts; Imposing fees for inactive accounts is also an option; Winning back existing customers can be achieved by linking benefits to a full suite of banking services; Citibank offers an extensive reward program that offers benefits across a range of banking products; This is an interesting proposition, as it places the focus for value on the banking relationship rather than individual products; Offering a strong card-based reward program is also an option here, and issuers should look at the Banesto Diez en Una card; Targeting new customers with good credit histories will require an outstanding offering and one with strong rewards; Bank of America's Accelerated Cash Rewards card offers cashback at 1.25%; Explicitly offering more attractive terms to better credit risks is a strategy employed by Capital One in the US; The Capital One Card Lab takes this a stage further by allowing consumers to customize their products; Cards with an installment option present opportunities in dealing with potential risks; Cardholders who may fall into difficulties should be encouraged to structure their balances; Offering installment repayment options may also allow issuers to reduce their risk exposure; Standard Chartered introduced a credit card in Singapore that automatically splits larger purchases into monthly installments; Creating incentives for repaying borrowing can help issuers to manage potential credit risks; ANZ Bank has launched a product that rewards cardholders for repaying balances; The interesting feature of this product is that it effectively rewards both card activity and repayment; The product aligns the interests of the cardholder with the issuer in a time of economic uncertainty; Discover has a similar proposition that rewards payments made on time; In the US, Discover launched the Motiva card, which rewards on-time payments; The product is likely to result in cardholders with multiple products prioritizing payments to Discover; Discover is also proactively communicating with its customers to set structured repayment plans for balances and to allow for accurate spend monitoring; Alongside this, the Spend Analyzer tool allows cardholders to get a clear view of their spending habits; However, initiatives such as these are not the only way to improve cardholder behavior; Winning back transactions from debit is a key strategy and can be achieved by linking rewards to other financial products; Fidelity offers a credit card linked to a full suite of savings reward programs for all walks of life
APPENDIX: The financial services Megatrends Framework; Datamonitor has identified 10 Megatrends in consumer behavior; Megatrends are tools for capturing the drivers of consumer behavior; A Megatrends Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors; A trend framework is used for generating and selecting ideas; A Megatrends Framework is vital for financial services; Customer retention as well as customer acquisition must be considered; There are inherent obstacles in financial services that limit innovation in customer targeting; Greater customer understanding can help overcome the obstacles found with targeting and communicating to customers; The six behavior trends identify the benefits that consumers wish to gain from a product or service; Authenticity; Comfort; Connectivity; Convenience; Individualism; Wellbeing; The four complexities are areas within which traditional assumptions or measures of behavior no longer apply; Demographic complexity; Financial intelligence complexity; Lifestage complexity; Wealth complexity; Definitions; AAGR; Affinity card; APACS; ATM-only card; Average transaction value; Balances outstanding; Bank of England base rate; CAGR; Charge card; Co-branded card; Credit card; Debit card (pay now); EMV; FLA; Fraudulent use of card details (card-not-present fraud), also known as fraud on phone, mail order or internet transactions; Frequency of use; Interchange; Non-standard; OFT; POS terminal; Private label card; Turnover per card per year; Methodology; Primary research; Secondary research; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Forecast UK plastic cards market 2009-13; Table 2: Datamonitor's forecast of transaction values for the UK plastic card market, 2009-13; Table 3: Datamonitor's neutral scenario forecast of the total UK card market 2009-13; Table 4: Forecast performance of the UK consumer credit market drivers under the neutral scenario, 2009-13; Table 5: Datamonitor's five year forecast of the credit card market under a neutral scenario, 2009-13; Table 6: Market drivers for the UK credit card market under Datamonitor's forecast scenario, 2004-13; Table 7: Datamonitor's five year forecast of the credit card market under an Optimistic scenario, 2009-13; Table 8: Market drivers for the UK credit card market under an optimistic scenario, 2004-13; Table 9: Forecast performance of the UK consumer credit market drivers under an optimistic scenario 2009-13; Table 10: Datamonitor's five year forecast of the credit card market under a pessimistic scenario, 2009-13; Table 11: Market drivers for the UK credit card market under a pessimistic scenario, 2004-13; Table 12: Forecast performance of the UK consumer credit market drivers under a pessimistic scenario 2009-13; Table 13: Datamonitor's five year forecast of the debit card market, 2009-13; Table 14: Market drivers for the UK debit card market under a neutral scenario, 2004-13; Table 15: Datamonitor's five year forecast of the UK charge card market, 2009-13; Table 16: Market drivers for the UK charge card market under Datamonitor's forecasting scenario 2004-13; Table 17: Datamonitor's five year forecast of the UK private label market, 2009-13; Table 18: Market drivers for the UK private label card market under Datamonitor's forecasting scenario 2004-13; Table 19: Consumer perceptions of the features on their credit card by brand; Table 20: UK prepaid cards by number of cards in issue by brand and issuing group; Table 21: Prepaid transaction by type, frequency, value and average balance per card per year; Table 22: Capital One's classification of credit ratings in the US, 2009; Table 23: Current relevant publications, 2008-09; Table 24: Future relevant publications, 2009
List of Figures: Figure 1: The value of transactions across UK cards grew by a CAGR of 9.9% between 2004 and 2008; Figure 2: The gap between debit and credit card holdings has grown since 2005; Figure 3: The total number of cards in the market has grown due to the growth of debit; Figure 4: Visa has successfully grown its debit card market share to nearly two thirds of the sector; Figure 5: MasterCard has successfully grown its credit card positioning to 58.1% of the market; Figure 6: The total UK card market will see growth in transaction values through to 2013; Figure 7: Following the merger with HBOS, Lloyds now dominates the market; Figure 8: Lloyds holds 21% of the market by balances outstanding but is closely followed by MBNA at 20%; Figure 9: Issuer strategy evolves around two pillars and six potential areas to target; Figure 10: Following a CAGR of 10.0% from 2004-08, growth will slow to a CAGR of 2.5% from 2009 to 2013; Figure 11: While a concern last year, inflation has dropped, while deflation is now a potential risk; Figure 12: Despite predictions card write-offs have not risen as sharply as unemployment; Figure 13: The index of write-offs, insolvency, and unemployment suggests probable growth in write-offs; Figure 14: Although momentarily stabilizing, the value of card write-offs has grown over the past 10 years; Figure 15: Both balances and transaction values are declining compared to their position the previous year; Figure 16: 2009 transaction value, continue to fall below the previous year following the collapse of Lehman; Figure 17: Transaction values have seen a sustained decline since December 2009; Figure 18: Despite some seasonal fluctuations, quarterly outstanding balances have remained broadly stable; Figure 19: Hard pressed consumers are turning to other forms of credit such as overdrafts; Figure 20: Quarter on quarter growth in overdrafts and credit card outstandings show a strong correlation; Figure 21: Monthly balance transfers are showing long term decline; Figure 22: The value of balance transfers have dropped by 52% between Q1 2006 and Q2 2009; Figure 23: Plastic cards have grown to a 6.5% share of the total UK payments market; Figure 24: The value of card transaction grew by a CAGR of 9.9% between 2004 to 2008; Figure 25: The total number of cards in the market has grown due to the growth of debit; Figure 26: The private label card market has declined 33% since 2004, but the rate of decline is slowing; Figure 27: The gap between debit and credit card holdings has grown since 2005; Figure 28: The share of platinum and co-branded cards has grown while affinity and gold cards has declined; Figure 29: There were over 10.1 billion card transactions in 2008, compared to 8.0 billion in 2004; Figure 30: The bulk of transaction growth per card is from debit cards which had an AAGR of 4.4% from 2004-08; Figure 31: The total value of all transaction had a CAGR of 9.9% between 2004 and 2008; Figure 32: Charge cards hold the highest average transaction value at £117.86 in 2008; Figure 33: Charge cards also hold by far the highest turnover per card at £7,505 in 2008; Figure 34: Debit card turnover per adult in the population is strongly led by debit at £8,661 in 2008; Figure 35: UK purchases continue to constitute the bulk of all UK card transactions; Figure 36: Debit card transaction values had a CAGR of 13.1% between 2004 and 2008; Figure 37: The credit market remains flat, and has had a CAGR of only 1.0% from 2004-08; Figure 38: Charge cards have seen the highest growth by transaction values with a CAGR of 13.9%; Figure 39: Visa has successfully grown its debit card market share to nearly two thirds of the sector; Figure 40: MasterCard has successfully grown its credit card positioning to 58.1% of the market; Figure 41: The charge card market remains dominated by American Express with a 50.9% share; Figure 42: The number of POS terminals continues to rise, growing by nearly a fifth since 2004; Figure 43: ATM numbers are also rising, yet 2008 saw a slight drop in the number of independent machines; Figure 44: Despite the introduction of EMV in 2006, instances of card fraud continue to grow; Figure 45: Card not present fraud and counterfeit cards are the only forms of fraud seeing growth; Figure 46: Following from a 15.4% decline, the value of card fraud has grown 42.8% between 2006 and 2008; Figure 47: The total UK card market will see growth in transaction values through to 2013; Figure 48: Following the merger with HBOS, Lloyds now dominates the market; Figure 49: The newly formed Lloyds Group is now the UK market leader with 22.3% of cards in issue in H1 09; Figure 50: Barclaycard is the largest player by brand ahead of both Lloyds TSB, and HBOS; Figure 51: Barclaycard by far has the highest number of primary cards in the market; Figure 52: Tesco and John Lewis/Waitrose are the primary card for more than 75% of their customers; Figure 53: 40% of Barclaycard's cards in issue are premium branded; Figure 54: There were 278 million transactions made on Barclaycard branded credit cards in 2008, ahead of NatWest and Lloyds TSB branded products; Figure 55: Transaction values follow a very similar pattern to transaction numbers, with Barclaycard and NatWest leading the market in 2008; Figure 56: Regardless of total transaction values, average spend per transaction is highly variable; Figure 57: Tesco and American Express have the highest proportion of cards that are used all the time; Figure 58: Lloyds Group now has the highest level of balances outstanding, followed closely by MBNA; Figure 59: Lloyds holds 21% of the market by balances outstanding but is closely followed by MBNA at 20%; Figure 60: Citigroup has the highest average balance per card, growing 30% since June 2007; Figure 61: Repayment rates are higher for cards with rewards and incentives, with cardholder most likely to revolve on Virgin Money and MINT cards; Figure 62: The number of debit cards in issue has increased in H1 2009; Figure 63: The debit card market is evenly divided between the dominant big leading banks; Figure 64: POS makes up more than 70% of all debit transactions by volume; Figure 65: POS accounts for 60% of all debit transactions by value; Figure 66: Average spend levels are highly variable by issuer; Figure 67: Santander is by far, the dominant issuing group of private label cards as at H1 2009; Figure 68: Debenhams is the leading brand for private label store cards; Figure 69: The private label sector is fragmented, with Debenhams leading with a 17% market share; Figure 70: The overall number of cancelled private label cards in the UK market is high; Figure 71: With the highest brand awareness, Virgin and PayPal lead the prepaid cards market; Figure 72: The prepaid cards sector is dominated by four issuers accounting for 75% of the market; Figure 73: POS dominates prepaid card usage, with £5.5 billion of POS transactions in 2008; Figure 74: Barclaycard used viral marketing techniques as part of its campaign; Figure 75: MyBarclaycard will offer users in-depth online card management services; Figure 76: Barclaycard is strengthening its branding with younger consumers through strategic sponsorship; Figure 77: The Santander rebranding of Abbey has begun in London; Figure 78: Issuer strategy evolves around two pillars and six potential areas to target; Figure 79: Citi's ThankYou Network reward program is linked to credit cards and other retail banking products, 2009; Figure 80: Citi's website for its ThankYou Network reward program offers a range of redemption options; Figure 81: The Banesto Tarjeta Diez en Una product offers a permanent 5% discount at 10 major retailers; Figure 82: Bank of America Accelerated Cash Rewards offers 1.25% on all purchases, 2009; Figure 83: Capital One Card Lab portal, 2009; Figure 84: BMO offers reduced interest loan consolidation offer for loans and credit card balances, 2009; Figure 85: Swedbank offers three distinctive card products including installment, revolving and charge cards, 2009; Figure 86: ANZ Balance Visa offers reward points for paying back cardholder's balance, 2009; Figure 87: Discover Motiva card designed to reward customers for paying back on time, 2009; Figure 88: Discover's Paydown Planner tool helps cardholders to pay back the money owned, 2009; Figure 89: The Spend Analyzer is easy to use and useful tool for cardholders managing their finances, 2009; Figure 90: Fidelity credit card range is linked to innovative savings reward programs, 2009

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