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UK Plastic Cards: Outlook to 2010

Published by: Datamonitor

Published: Jun. 22, 2009 - 43 Pages


Table of Contents


Overview
Catalyst
Summary
Table of Contents
Table of figures
Table of tables
The UK credit card market: a ticking time bomb?
The cards market is faced with challenges to revenues and costs
Unemployment is growing and will result in further growth in card write-offs
As insolvencies and unemployment rise, card write-offs will inevitably increase shortly afterwards
Bankruptcy orders and IVAs have increased over time and this trend will continue in 2009 and 2010
Consumers continue to accumulate debt, potentially building up further pain for issuers
Balances on cards are growing, while transaction values fall, causing a double impact on issuer revenues
Repayment rates consistently below 100% support the growth in balances outstanding
Growth in personal debt is not restricted to cards and is a further major area of concern for card issuers
Existing account holders are taking out more cards, spreading their debts more widely
Recessionary consumer behavior also represents a major challenge to issuers
The value of transactions in 2008 fell below 2007 levels
The total number of transactions and average spend per transaction is decreasing
Consumers are also relying more heavily on cash
Sharp falls in consumer confidence are underpinning the slowdown in card activity
Also of concern to issuers is that house prices are not expected to stabilize until 2010
In addition to the immediate threats, the long term challenge from debit shows no signs of letting up
Card usage rates for debit are growing at a cost to credit
Datamonitor forecasts a 6.4% fall in the credit card market in 2009
2009 will see a 6.4% drop in the credit card market and there will be a further drop of 1.5% in 2010
The volume and value of credit card POS transactions will see a 7% drop over 2009 and 2010
Credit card use at ATMs will drop by 19.8% in 2009 and will not recover
Macro level indicators suggest 2009-2010 will be a difficult period
The range of scenarios show the credit card market declining from an optimistic 1.6% to a pessimistic 10.8%
Debit cards will remain stable with value growth of 4.95% across 2009 and 2010
Debit will grow 9.67% at the POS and drop 2.2% at ATMs by 2010
Issuers must manage risk more carefully yet increase card usage if they are to navigate through the downturn
Managing defaults through identification and opening dialogue can help relieve pressure on the market
Innovations in repayments will help both short term and long term growth
Portfolio optimisation must continue to help limit issuer exposure to risk
Issuers need to find out why consumers are not using cards
Repayment rates can be improved by incentivising consumers
Issuers must improve consumer reluctance to use credit cards for small scale transactions
Rewards and loyalty programs remain a key way to help driver card usage
Appendix
Supplementary data
Datamonitor's forecast for the credit card market under a neutral scenario
Datamonitor's forecast for the credit card market under an optimistic scenario
Datamonitor's forecast for the credit card market under a pessimistic scenario/
Datamonitor's forecast for the debit card market under a neutral scenario
Definitions
AAGR
APACS
Average transaction value
Balances outstanding
Bank of England base rate
CAGR
Charge card
Credit card
Debit card
Methodology
Primary research
Secondary research
Further reading
Ask the analyst
Datamonitor consulting
Disclaimer
List of Tables
Table 1: Historic and forecast view of the credit card market under a neutral scenario
Table 2: Across all scenarios the credit card market will see a drop in 2009-2010
Table 3: Historic and forecast view of the credit card market under a neutral scenario
Table 4: Neutral scenario of the historic and forecast credit card market 2006-2010
Table 5: Neutral forecast of the consumer credit market, 2006-2010
Table 6: Optimistic scenario of the historic and forecast credit card market 2006-2010
Table 7: Optimistic forecast of the consumer credit market 2006-2010
Table 8: Pessimistic scenario of the historic and forecast credit card market 2006-2010
Table 9: Pessimistic forecast of the UK consumer credit market, 2006-2010
Table 10: Neutral scenario of the historic and forecast debit card market 2006-2010
Table 11: Current relevant publications, 2008-2009
Table 12: Future relevant publications, 2009
List of Figures
Figure 1: Growth in unemployment points to a sharp increase in write-offs in 2009
Figure 2: Bankruptcy orders and IVAs have increased every quarter since Q4 2007, a trend that is likely to continue
Figure 3: Despite falling transaction values balances outstanding continue to rise, creating potential problems for the future
Figure 4: Repayment rates have not risen above 100% since Q2 07
Figure 5: Following a period of decline, overdraft amounts outstanding are increasing
Figure 6: Card volumes increased in Q1 09, despite a drop in account numbers
Figure 7: Monthly transaction values saw a decline from September 2008 onwards
Figure 8: The average value and number of transactions decreased from September 2008 onwards
Figure 9: ATM withdrawals follow seasonal patterns and saw an increase in Q4 of 2008
Figure 10: The drop in ATM withdrawal values in Q4 08 demonstrates that consumers are moving into recessionary behavior
Figure 11: The Consumer Confidence Index declined in 2008, which explains the drop off in spending and card activity
Figure 12: House prices have declined sine 2007 and will not stabilize until 2010
Figure 13: Debit was growing while credit shrank in Q4 08 and Q1 09
Figure 14: The combined fall of POS and ATM transactions will strongly impact the credit card market
Figure 15: Credit card transactions will decline in both volume and value at the POS in 2009 and 2010
Figure 16: ATM credit card withdrawals will shrink through to 2010
Figure 17: Under all scenarios the credit card market will contract in 2009
Figure 18: Despite the downturn debit will continue to grow through to 2010 and beyond

Abstract

Introduction

With the recent dramatic developments in the global economy the UK card market is going to go through a severe shake up in 2009 and 2010. This report offers an insight into what shape these changes will take, and the impact on the cards industry through to 2010. By using the most up to date market indicators this report highlights what will be the key influencers in a challenging environment.

Scope
  • Part of the UK Plastic Cards series this report provides insight into what impact the recession will have on the cards market
  • Using the latest figures, the report focuses on the likely impact from the rise in unemployment on write-offs and repayments
  • Other key indicators covered in this report include rising rates of household debt, and consumer shifts to recessionary behaviour
  • By using the latest available market data the report offers concrete signs of the early impact of the downturn, and likely future outcomes
Highlights

With rising levels of unemployment the UK cards market is faced with a ticking time bomb. Despite a stagnating economy, the UK credit card market remained buoyant until unemployment began to rise. With unemployment estimated at 2.2m and rising this will impact at all levels of the cards market as balances rise and card write-offs increase.

Levels of household consumer debt have risen to problem levels during recent years, despite an economic boom. Now faced with a worsening climate, many consumers already on the brink of insolvency will be pushed over the edge. Even for non-insolvent cardholders, balances are growing while repayment rates decline to problem levels for issuers.

Consumer behaviour is changing faster than the rate of economic slowdown. Spending levels, and transaction values began to fall before the full impact of the downturn was felt by consumers. Now that consumers are feeling real hardship spending levels will continue to decrease as consumer confidence remains low.

Reasons to Purchase
  • Understand the dramatic changes affecting the cards industry, with the latest available market data providing real world insight
  • Learn what are the key factors that will shape the UK cards market through the downturn and the likely shape of the market in the future
  • Develop strategies for dealing with the impact of the global downturn by having an accurate account of what is happening now
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