UK Plastic Cards 2009

Published by: Datamonitor

Published: Oct. 26, 2009 - 150 Pages

Table of Contents

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

Abstract

• 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

• 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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