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Credit and Debit Cards - UK - July 2010

This report looks at all aspects of the credit and debit cards market, starting off with the factors that directly affect the market, as well as more general trends like interest rates, consumer spending and PDI. The report considers competing products and alternative payment methods, before looking at the actual and forecast growth in each of the core markets. Payment systems providers are examined, before an analysis of the leading card issuers in each sector, including their market shares. The report concludes with a detailed consumer-based analysis of product ownership, borrowing, and attitudes towards credit card features and different payment methods in general.

  • Credit card interest rates have increased over the last two years, despite the base rate having remained at 0.5% for well over a year now – alongside tighter lending criteria, this reflects card providers’ fears over rising defaults.
  • In May 2010, the government announced a set of new rules for the credit card industry, which is likely to impact profitability and increase costs for providers. At the same time, the OFT announced that it would be going ahead with its point-of-sale ban on PPI, which is likely to significantly reduce policy sales.
  • The debit card market is growing fast – the total value of UK purchases made on debit cards has increased by 76% since 2004, compared to just 2% growth for credit card purchases, according to data from the UK Cards Association.
  • Mintel expects that this trend will continue and that spending on credit cards will continue to be subdued over the next five years, with the market expected to grow by just 10% between 2010 and 2015, compared to 36% growth in the total value of UK purchases on debit cards.
  • When it comes to credit card features, Mintel’s consumer research shows that ABC1s are more likely to be concerned about customer service, with ABs also being drawn to credit cards that offer cash back/reward schemes.
  • Our research also shows that around two fifths of consumers pay by card whenever it’s practical (56% of people earning £50,000+), with one in ten people using different cards for different purposes, and 28% of adults still using cheques occasionally.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Nurturing a more sustainable consumer borrowing trend
            • Helping communities – contactless payments in the village shop
            • Market in Brief

              • Debit card purchases are growing while credit cards remain flat
                • Figure 1: Value of transactions for UK purchases, by card type, 2004-09
              • New rules for credit card providers have been announced
                • Consumers remain cautious about their spending
                  • Innovation in the market has increased this year
                    • Consumers’ appetite for debt has waned
                      • Figure 2: Gross and net consumer credit lending (excluding credit cards, seasonally adjusted), Jan 2004-Mar 2010
                    • Visa Debit and MasterCard are the dominant schemes
                      • Lloyds Banking Group dominates in both markets
                        • Figure 3: Estimated market share of the top ten credit card providers* (individual brands), April 2010
                      • Credit card adspend has declined significantly since 2007
                        • Most people apply for a credit card in-branch
                          • Figure 4: Method used to apply for credit card, 2008-09
                        • Debit card ownership is rising, but for credit cards has remained flat
                          • Figure 5: Types of payment card owned, 2006-09
                        • Two fifths of consumers pay by card whenever it’s practical
                          • Figure 6: Attitudes towards different payment methods, April 2010
                      • Internal Market Environment

                        • Key points
                          • Lending rates have increased despite the low base rate…
                            • Figure 7: Official end-of-month bank rate and monthly average bank and building society overdraft and credit card interest rates, January 2004-April 2010
                          • … but conditions may have started to improve
                            • Rejection rates have increased during the credit crunch
                              • New rules for card providers will have a big impact
                                • Is this the end of fee-free credit cards?
                                  • Credit card complaints are still at record levels
                                    • Credit card providers can expect to take a hit on PPI sales
                                      • Measures aimed at tackling card fraud appear to be working
                                        • Figure 8: Total value of plastic card fraud losses on UK-issued cards, 2005-09
                                      • Increased competition for prime customers
                                        • The launch of the Faster Payments Service
                                          • The regulatory landscape
                                            • The launch of the Lending Code
                                              • New FSA rules on banking conduct
                                                • The Payment Service Directive
                                                  • The new Consumer Credit Directive
                                                    • Investigation into interchange fees
                                                    • Broader Market Environment

                                                      • Key points
                                                        • Consumer spending is a key driver of the market
                                                          • Figure 9: GDP, PDI, consumer expenditure and savings, at current prices, 2005-15
                                                        • High unemployment is a concern for credit card providers…
                                                          • Figure 10: Working age unemployment rate, seasonally adjusted, Feb 2004-Feb 2010
                                                        • … as is the rising number of personal insolvencies
                                                          • Figure 11: Number of personal insolvencies in England and Wales (not seasonally adjusted), Q1 2004-Q1 2010
                                                        • High inflation puts more pressure on disposable incomes
                                                          • Figure 12: Monthly changes in the rate of annual inflation* and Bank of England base rate (not seasonally adjusted), Jan 2004-Apr 2010
                                                        • Consumer confidence has increased, but remains low
                                                          • Figure 13: Monthly, 3-monthly and 12-monthly UK consumer confidence indices, January 1988-March 2010
                                                        • Consumer appetite for debt has declined
                                                          • Figure 14: Intended consumer credit activities, Q3/Q4 2002-Q1/Q2 2010
                                                      • Competitive Context

                                                        • Key points
                                                          • The rise of plastic, the decline of cash and cheque use
                                                            • Figure 15: Share of transaction volumes, by payment type (excluding cash), 2018
                                                          • Consumer appetite for debt – what appetite?
                                                            • Figure 16: Gross and net consumer credit lending (excluding credit cards, seasonally adjusted), Jan 2004-Mar 2010
                                                          • Demand for unsecured personal loans remains low
                                                            • Figure 17: New gross unsecured loan advances – MBBG and total market, 2004-09
                                                          • Store cards and prepaid cards are other niche alternatives
                                                            • Figure 18: Types of payment card owned, 2004-09
                                                        • SWOT Analysis

                                                            • Figure 19: Credit and debit cards – SWOT analysis, 2010
                                                        • Who’s Innovating?

                                                          • Key points
                                                            • The development of contactless payments
                                                              • Several providers launch new reward schemes
                                                                • Offering current account customers a better deal
                                                                  • Virgin Money launches two new credit cards
                                                                    • Visa launches a new hi-tech payment card
                                                                    • Market Size and Forecast

                                                                      • Key points
                                                                        • Outstanding credit card balances have started to rise
                                                                          • Figure 20: Outstanding credit card balances (seasonally adjusted), January 2004-March 2010
                                                                        • Gross lending has fallen significantly since December 2007
                                                                          • Figure 21: Gross and net credit card lending (seasonally adjusted), January 2004-March 2010
                                                                        • The number of credit cards in issue fell significantly last year
                                                                          • Figure 22: Number of payment cards in issue, by type, 2004-09
                                                                        • Debit card transaction volumes are increasing by 10% every year…
                                                                          • Figure 23: Volume of transactions for UK purchases, by card type, 2004-09
                                                                        • … while growth in value terms is even more pronounced
                                                                          • Figure 24: Value of transactions for UK purchases, by card type, 2004-09
                                                                        • Credit cards tend to be used for higher value purchases
                                                                          • Figure 25: Average transaction value (ATV) for UK purchases, by card type, 2004-09
                                                                        • Debit cards are being used more and more frequently
                                                                          • Figure 26: Average number of transactions per card for UK purchases, by card type, 2004-09
                                                                        • Debit cards account for the vast majority of cash withdrawals
                                                                          • Figure 27: Value of transactions for UK cash withdrawals, by card type, 2004-09
                                                                        • More people are using their debit cards when abroad
                                                                          • Figure 28: Summary of credit and debit card transactions outside the UK, transaction volumes, values and average transaction values, 2009
                                                                        • Forecast
                                                                          • Credit card growth will be fairly subdued over the next few years
                                                                            • Figure 29: Credit cards forecast: transaction volumes, values, and average transaction value (ATV) for UK purchases, 2005-15
                                                                          • The debit card market will continue to grow
                                                                            • Figure 30: Debit cards forecast: transaction volumes, values, and average transaction value (ATV) for UK purchases, 2005-15
                                                                          • Factors used in the forecast
                                                                          • Payment Systems Providers

                                                                            • Key points
                                                                              • Debit cards
                                                                                • Visa Debit is fast becoming the dominant force in the market…
                                                                                  • Figure 31: Total debit card transaction volumes, by payment systems provider, 2004-09
                                                                                • …accounting for two thirds of total debit card transactions by value
                                                                                  • Figure 32: Total debit card transaction values, by payment systems provider, 2004-09
                                                                                • Credit cards
                                                                                  • MasterCard is the leading credit card scheme provider…
                                                                                    • Figure 33: Credit card transaction volumes for UK purchases, by payment systems provider, 2004-09
                                                                                  • … accounting for 63% of UK purchase transactions by value
                                                                                    • Figure 34: Credit card transavtion values for UK purchases, by payment systems provider, 2004-09
                                                                                  • Both Visa and MasterCard have seen a decline in cash withdrawals…
                                                                                    • Figure 35: Credit card transaction volumes for UK cash withdrawals, by payment systems provider, 2004-09
                                                                                  • … though Visa has seen the largest decline
                                                                                    • Figure 36: Credit card transaction values for UK cash withdrawals, by payment systems provider, 2004-09
                                                                                • Market Share

                                                                                  • Key points
                                                                                    • The large high street banks dominate the current account market
                                                                                      • Figure 37: Share of main current account-holder customer base, by banking group (top seven only), March 2010
                                                                                    • LBG is the leading credit card provider at group level…
                                                                                      • Figure 38: Estimated market share of credit card providers, April 2010
                                                                                    • … but Barclaycard still tops the list of individual brands
                                                                                      • Figure 39: Estimated market share of the top ten credit card providers* (individual brands), April 2010
                                                                                  • Companies and Products

                                                                                    • Barclaycard
                                                                                        • Figure 40: Credit card range – Barclaycard, June 2010
                                                                                      • HSBC Group (including M&S Money credit cards)
                                                                                          • Figure 41: Credit card range – HSBC, June 2010
                                                                                        • Lloyds Banking Group
                                                                                            • Figure 42: Credit card range – Lloyds TSB, June 2010
                                                                                            • Figure 43: Credit card range – Halifax/Bank of Scotland*, June 2010
                                                                                          • MBNA
                                                                                              • Figure 44: Most popular credit card range – MBNA, June 2010
                                                                                            • RBS Group
                                                                                                • Figure 45: Credit card range – RBS Group, June 2010
                                                                                            • Brand Communication and Promotion

                                                                                              • Key points
                                                                                                • Plastic card adspend has declined during the credit crunch
                                                                                                  • Figure 46: Plastic card adspend, by sub-category, 2007-09
                                                                                                • American Express has significantly increased its share of voice
                                                                                                  • Figure 47: Plastic card adspend, by company (top ten), 2007-09
                                                                                                • Direct mail accounts for over half of total sector adspend
                                                                                                  • Figure 48: Plastic card adspend, by media type, 2007-09
                                                                                                • Plastic card adspend peaks pre- and post-Christmas
                                                                                                  • Figure 49: Adspend seasonality, based on average monthly adspend over three years, 2007-09
                                                                                              • Channels to Market

                                                                                                • Key points
                                                                                                  • The branch is still the main method of applying for a credit card…
                                                                                                    • Figure 50: Method used to apply for credit card, 2008-09
                                                                                                  • … although online credit card applications are increasing
                                                                                                  • The Consumer – Credit Card and Debt Ownership

                                                                                                    • Key points
                                                                                                      • Around a quarter of people have outstanding credit card debts
                                                                                                        • Figure 51: Types of credit on which people owe money, April 2010
                                                                                                      • People in the family lifestage more likely to have an outstanding balance
                                                                                                        • Figure 52: Types of credit on which people owe money, by demographics, April 2010
                                                                                                      • Almost three quarters of adults have a credit card
                                                                                                        • Figure 53: Types of payment card owned, 2006-09
                                                                                                      • Multiple credit card ownership has declined slightly
                                                                                                        • Figure 54: Number of credit/charge cards and debit cards owned, 2006-09
                                                                                                    • The Consumer – Card Usage and Outstanding Debt

                                                                                                      • Key points
                                                                                                        • Most people with outstanding debts owe relatively small amounts
                                                                                                          • Figure 55: Total amount owed on outstanding unsecured debts, April 2010
                                                                                                        • Most spend relatively small amounts on their credit card each month
                                                                                                          • Figure 56: Average monthly credit card spend, 2006-09
                                                                                                        • Debit cards are used much more frequently than credit cards
                                                                                                          • Figure 57: Frequency of use of credit and debit cards, 2006-09
                                                                                                      • The Consumer – Choice of Credit Card Provider

                                                                                                        • Key points
                                                                                                          • Barclaycard is the leading individual credit card brand
                                                                                                            • Figure 58: Who people have a credit card with, April 2010
                                                                                                          • Lloyds Banking Group credit cards appeal more to young adults…
                                                                                                            • Figure 59: Who people have a credit card with (group level), by demographics, April 2010
                                                                                                          • … but it also attracts more C2DEs
                                                                                                          • The Consumer – Credit Card Features Desired

                                                                                                            • Key points
                                                                                                              • Customer service is key and cuts across all segments of the market
                                                                                                                • Figure 60: Features desired in a credit card, April 2010
                                                                                                              • ABC1s are particularly fussy about customer service
                                                                                                                • Figure 61: Most popular features desired in a credit card, by demographics, April 2010
                                                                                                              • The balance transfer market is centred around the less affluent
                                                                                                                • Retailers are particularly strong when it comes to reward schemes
                                                                                                                  • Figure 62: Features sought in a credit card, by who people have a credit card with, April 2010
                                                                                                              • The Consumer – Attitudes Towards Different Payment Methods

                                                                                                                • Key points
                                                                                                                  • Consumers like the convenience of paying by card…
                                                                                                                    • Figure 63: Attitudes towards different payment methods, April 2010
                                                                                                                  • …but most still use cheques occasionally
                                                                                                                    • High earners are more likely to pay for things by card
                                                                                                                      • Figure 64: Attitudes towards different payment methods (excluding statements on contactless payments), by demographics, April 2010
                                                                                                                    • … but will also use cheques, suggesting a more diverse approach
                                                                                                                      • Contactless payments – look to older and more affluent consumers
                                                                                                                        • Figure 65: Familiatrity and use of contactless payments, by demographics, April 2010
                                                                                                                      • Multiple card users are more engaged and diverse
                                                                                                                        • Figure 66: Selected attitudes towards different payment methods, by all attitudes towards different payment methods, April 2010
                                                                                                                    • The Consumer – Target Groups

                                                                                                                      • Key points
                                                                                                                        • Card Lovers and Multiple Payment Users are the best target
                                                                                                                          • Figure 67: Attitudes towards different payment methods, by target groups, April 2010
                                                                                                                        • Affluent individuals are more likely to be Multiple Payment Users
                                                                                                                          • Figure 68: Target groups, by demographics, April 2010
                                                                                                                        • Card Lovers have the highest level of outstanding debt
                                                                                                                          • Figure 69: Total amount owed on outstanding unsecured debts, by target groups, April 2010
                                                                                                                        • Multiple Payment Users are more likely to choose a smaller provider…
                                                                                                                          • Figure 70: Who people have a credit card with, by target groups, April 2010
                                                                                                                        • … and are more interested in softer issues like customer service
                                                                                                                          • Figure 71: Features desired in a credit card, by target groups, April 2010
                                                                                                                      • Appendix – Market Share

                                                                                                                          • Figure 72: Main current account provider, by individual brand, March 2009-March 2010
                                                                                                                      • Appendix – The Consumer – Credit Card and Debt Ownership

                                                                                                                          • Figure 73: Types of credit on which people owe money, by demographics, April 2010
                                                                                                                          • Figure 74: Demopgraphic profile of credit card holders who have outstandiung debts on a credit card, April 2010
                                                                                                                      • Appendix – The Consumer – Choice of Credit Card Provider

                                                                                                                          • Figure 75: Who people have a credit card with (group level), by demographics, April 2010
                                                                                                                          • Figure 76: Who people have a credit card with (individual brands), by demographics, April 2010
                                                                                                                          • Figure 77: Who people have a credit card with (individual brands), by demographics, April 2010 (continued)
                                                                                                                      • Appendix – The Consumer – Credit Card Features Desired

                                                                                                                          • Figure 78: Features desired in a credit card, by demographics, April 2010
                                                                                                                          • Figure 79: Features desired in a credit card, by demographics, April 2010 (continued)
                                                                                                                      • Appendix – The Consumer – Attitudes Towards Different Payment Methods

                                                                                                                          • Figure 80: Attitudes towards different payment methods, by demographics, April 2010
                                                                                                                          • Figure 81: Attitudes towards different payment methods, by demographics, April 2010 (continued)
                                                                                                                      • Appendix – The Consumer – Target Groups

                                                                                                                          • Figure 82: Target groups, by demographics, April 2010

                                                                                                                      Companies Covered

                                                                                                                      • Abbey
                                                                                                                      • Alliance & Leicester
                                                                                                                      • American Express UK
                                                                                                                      • Asda Group Ltd
                                                                                                                      • Bank of America Corporation
                                                                                                                      • Bank of England
                                                                                                                      • Barclaycard
                                                                                                                      • Bhs Ltd
                                                                                                                      • Bradford & Bingley plc
                                                                                                                      • British Bankers' Association (BBA)
                                                                                                                      • British Retail Consortium
                                                                                                                      • Cancer Research UK
                                                                                                                      • Chartered Institute of Personnel and Development [CIPD]
                                                                                                                      • Citizens Advice Bureau
                                                                                                                      • Clydesdale Bank
                                                                                                                      • Co-operative Group
                                                                                                                      • Council of Mortgage Lenders
                                                                                                                      • Financial Ombudsman Service
                                                                                                                      • Financial Services Authority (The)
                                                                                                                      • Gfk NOP
                                                                                                                      • Grupo Santander Central Hispano S.A.
                                                                                                                      • HBOS plc (Halifax Bank of Scotland)
                                                                                                                      • HSBC Private Bank (UK) Limited
                                                                                                                      • J. Sainsbury
                                                                                                                      • John Lewis Partnership
                                                                                                                      • Kantar Media
                                                                                                                      • Lloyds Banking Group
                                                                                                                      • Marks & Spencer
                                                                                                                      • MasterCard UK
                                                                                                                      • MoneySupermarket.com Limited
                                                                                                                      • NatWest
                                                                                                                      • Office for National Statistics
                                                                                                                      • Office of Fair Trading
                                                                                                                      • PizzaExpress Limited
                                                                                                                      • Pret A Manger
                                                                                                                      • Royal Bank of Scotland Group plc
                                                                                                                      • Student Loans Company Ltd
                                                                                                                      • Tesco Plc
                                                                                                                      • Virgin Money
                                                                                                                      • Visa Europe
                                                                                                                      • World Wildlife Fund
                                                                                                                      • Yorkshire Bank PLC

                                                                                                                      Credit and Debit Cards - UK - July 2010

                                                                                                                      US $2,478.79 (Excl.Tax)