The threat from debit to the UK credit card market

Published by: Datamonitor

Published: Oct. 16, 2007 - 29 Pages

Table of Contents

Overview

Catalyst

Summary

Methodology

Table of Contents

Table of figures

Table of tables

The Threat from Debit to the UK Credit Card Market

Introduction

Debit is becoming the payment tool of choice for UK consumers, presenting a major challenge to the credit card market

Debit is rapidly becoming the payment tool of choice for UK consumers

Debit cards account for a far greater proportion of total card transaction values than in 2002

Indeed, debit is now more than ever the 'top of the wallet' choice for consumers when it comes to spontaneous purchases

This trend is ultimately driven by the value propositions offered by debit and credit

At a time when credit card issuers are being squeezed from all sides, this is a major challenge

Greater replacement of credit with debit has further hit interest income; it is not just transactors who are turning to debit

Replacement of credit with debit is also unlikely to have alleviated the problem of transactors

There are three core strategies open to credit card issuers to counter the threat from debit

Attacking debit as a day-to-day payment tool offers a clear route to revenue growth

Co-branding is the most obvious route to driving growth in POS use, but is a developed segment

Issuer-driven loyalty programs can achieve the same aim, but have been less successful

However, there are other approaches to this problem that can be learned from other markets

Repositioning the product as a borrowing tool will allow issuers to target other areas of consumer credit

This is an area that UK issuers have already managed to exploit successfully, but more can be done

However, the current credit climate makes this strategy a risky one

Repositioning the credit card to attack payments made by other means provides another clear route to revenue growth

Payments to utilities and for other bills are a huge potential market

The person-to-person payment market is also one that holds significant potential

Contactless technology represents a huge opportunity in capturing low-value cash payments

The threat from debit is a serious one, and there is no single remedy

The threat from debit is one of the key challenges facing the industry

Product development holds the key to growing revenues, but there is no single solution

APPENDIX

Definitions

APACS

Average transaction value

Balances outstanding

Charge card

Credit card

Debit card

EMV

Interchange

OFT

Methodology

Primary research

Secondary research

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Current relevant Datamonitor publications, 2007

Table 2: Future relevant Datamonitor publications, 2007

List of Figures

Figure 1: From a roughly even position in 2002, debit cards now dominate transactions at the POS, in addition to remaining the primary tool for cash acquisition, 2002-2006

Figure 2: Consumers are turning to debit rather than credit for spontaneous payments, 2002-2006

Figure 3: The revenue mix on the issuance side of the business has been squeezed over the last 12 months, 2005-2006

Figure 4: The slowdown in the credit card market has been mirrored by an upturn in overdraft borrowing, indicating the substitution of credit for debit cards, 2002-2006

Figure 5: The average value of a debit card purchase has increased much more rapidly than that of credit, reflecting the growing use of debit for higher value payments, 2002-2006

Figure 6: The unsecured consumer credit market represents a huge potential opportunity for credit card issuers to tap into, 2004-2006

Figure 7: Consumer credit write-offs have risen sharply from 2004 onwards, particularly in lending on credit cards, 2002-2006

Figure 8: Payments for commitments such as utility or telephone bills represent a large potential market for UK credit card issuers, 2006

Figure 9: The P2P payment market offers significant potential to credit card issuers, 2004

Figure 10: The value of cash payments below £15 in target sectors for contactless payments represents a significant potential revenue opportunity, 2006

Abstract

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