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Credit Cards - UK - August 2015

“Credit card issuers who are considering scaling back their customer rewards in order to offset a reduction in interchange fee income should heed the warning of Mintel’s research. Around one in five credit and charge card holders would either use their card less or stop using it altogether if their provider withdrew the rewards they currently offer.”
– Sarah Hitchcock, Senior Analyst – Financial Services

This report looks at the following areas:

  • Learn the lessons of the past
  • Meeting the needs of the mobile consumer, with a personalised service
  • Beware of cutting back on rewards

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Table of contents

  1. Overview

    • Executive Summary

        • The market
          • Rise in credit card borrowing…
            • Figure 1: Forecast of gross credit card lending, at current prices – Fan chart, 2010-20
          • …and spending
            • Balance transfer market hots up
              • Low base rate and fall in bad debts improve profitability
                • Reduced income from interchange fees could increase cost of borrowing
                  • Key players
                    • Barclays and LBG have the largest credit card customer bases
                      • Figure 2: Estimated group (volume) share of UK credit and charge card market, May 2015
                    • The consumer
                      • 63% of adult internet users own a credit card
                        • Figure 3: Ownership of credit and other payment cards, by type and number owned, May 2015
                      • 76% of credit and charge card holders manage their account online
                        • Figure 4: Channels used for account management, May 2015
                      • 27% have a credit or charge card because of the cashback or rewards offered…
                        • Figure 5: Reasons for having a credit or charge card, May 2015
                      • …and 75% of these would use their card less or not at all if the perks were withdrawn
                        • Figure 6: Likely response if card issuer withdrew cashback or other rewards, May 2015
                      • 47% still had a balance owing after making last monthly payment
                        • Figure 7: Amount still owing on credit card after last monthly payment, May 2015
                      • 18% with credit card debts predict it will take over two years to clear their balance, while 3% can’t envisage paying it off
                        • Figure 8: Length of time expected to take to clear credit card balance, May 2015
                      • Within the past year, 13% of cardholders either reached or extended their credit limit
                        • Figure 9: Credit and charge card applications, extensions, transfers and missed payments within the past 12 months, May 2015
                    • Issues and Insights

                        • Learn the lessons of the past
                          • The facts
                            • The implications
                              • Meeting the needs of the mobile consumer, with a personalised service
                                • The facts
                                  • The implications
                                    • Beware of cutting back on rewards
                                      • The facts
                                        • The implications
                                        • The Market – What You Need to Know

                                          • Greater appetite for credit card borrowing and balance transfers
                                            • Stable credit card penetration
                                              • Debit cards dominate non-cash payments
                                                • Increase in online and mobile payments
                                                  • Strong growth prospects
                                                    • A stronger economy drives growth in market
                                                      • Cap on interchange fees prompts some card issuers to scale back the rewards they offer to customers
                                                        • Most credit cards are now applied for and managed online
                                                        • Market Size and Forecast – Credit Card Lending

                                                          • Net credit card lending rises further
                                                            • Figure 10: Gross and net credit card lending (non-seasonally adjusted), 2010-15
                                                          • Strong growth forecast
                                                            • Figure 11: Forecast of gross credit card lending (non-seasonally adjusted) – Fan chart, 2010-20
                                                        • Size of the Payment Card Market

                                                          • Credit and debit cards in issue
                                                              • Figure 12: Number of debit, credit and charge cards in issue, 2001-14
                                                            • Size of the cardholder customer base
                                                              • Shift from cash to cards continues
                                                                • Figure 13: Share of consumer payment volumes, 2014
                                                            • Card Spending Patterns

                                                              • Growth in credit card spending
                                                                • Figure 14: Volume and value of credit and debit card purchase transactions, 2010-14
                                                              • Medium-term outlook for UK card purchases
                                                                • A slow drift away from cards as a source of credit
                                                                  • Overseas transactions
                                                                    • Shift online gathers pace
                                                                      • Surge in contactless payments
                                                                        • Cash advances on credit cards grew 6% in 2014
                                                                          • Balance transfer activity strengthens as card issuers increase terms
                                                                          • Market Drivers

                                                                            • Improved economic backdrop drives credit card spending and borrowing
                                                                              • Credit cards accounted for 73% of gross unsecured lending in 2014
                                                                                • Figure 15: Gross consumer credit lending, by sector (non-seasonally adjusted), 2000-14
                                                                              • Consumer credit net lending has risen over the past two years
                                                                                • Figure 16: Net consumer credit lending (non-seasonally adjusted), 2000-14
                                                                              • People are generally feeling better off
                                                                                • Figure 17: Personal financial situation, May 2012-May 2015
                                                                              • Total credit card debt outstanding increased 7% in 2014
                                                                                • Figure 18: Amount of credit card and other unsecured lending outstanding (non-seasonally adjusted), 2000-14 (at year end)
                                                                              • Credit card write-offs continue to fall
                                                                                • Figure 19: Annual write-offs of lending to individuals, by sector, 2005-14
                                                                              • Card issuers enjoy a period of improved interest margins
                                                                                • Figure 20: Official bank base rate, three-month LIBOR and effective overdraft, personal loan and credit card interest rates (monthly average), January 2008-May 2015
                                                                              • Impact of EU ruling on interchange fees
                                                                                • FCA investigates credit card complexity, fairness and transparency
                                                                                  • New payments regulator
                                                                                    • Growing cost of card fraud, driven by fraudsters targeting customers and rising incidents of cybercrime
                                                                                        • Figure 21: Annual plastic fraud losses on UK-issued cards, 2008-14
                                                                                    • Channels to Market

                                                                                      • Current account providers have a significant cross-sell advantage
                                                                                        • 49% of cardholders applied for their credit card online
                                                                                          • Figure 22: Channels used for card application, May 2015
                                                                                        • 76% manage their card account via online or mobile banking
                                                                                          • Figure 23: Channels used for account management, May 2015
                                                                                      • Key Players – What You Need to Know

                                                                                        • A crowded marketplace
                                                                                          • Barclaycard remains on top
                                                                                            • Tesco Bank bolsters its position with current account entry
                                                                                              • Capital One adopts a risky strategy
                                                                                                • More products launched to cater for the non-prime segment
                                                                                                  • Credit card issuers spend £95 million annually on above-the-line advertising
                                                                                                  • Market Share

                                                                                                    • Barclaycard tops credit card rankings by a clear margin…
                                                                                                      • Figure 24: Largest credit and charge card providers in the UK, by share of customers, May 2015
                                                                                                    • …but on a group basis, it shares the top spot with LBG
                                                                                                      • Figure 25: Estimated group (volume) share of UK credit and charge card market, May 2015
                                                                                                    • Two card schemes dominate
                                                                                                    • Competitive Strategies

                                                                                                      • Barclaycard: still the number one credit card brand and leading contactless technology innovator…
                                                                                                        • …by launching new wearable devices…
                                                                                                          • …streamlining the customer experience…
                                                                                                            • …and via strategic acquisition
                                                                                                              • LBG sees 15% increase in balance transfer volumes during 2014
                                                                                                                • Retailers make further inroads
                                                                                                                  • Capital One at risk of losing market share?
                                                                                                                    • Nationwide launches “Fairness Campaign”
                                                                                                                      • Credit builders muscle in
                                                                                                                        • American Express: strong on loyalty
                                                                                                                        • Brand Communication and Promotion

                                                                                                                          • Credit card adspend stabilises
                                                                                                                            • Figure 26: Recorded above-the-line, direct mail and online display total advertising expenditure on credit, charge, store and affinity cards, 2011-15
                                                                                                                          • Rise of social media
                                                                                                                            • Direct mail remains the offline channel of choice for card issuers
                                                                                                                              • Figure 27: Recorded above-the-line advertising expenditure on credit and charge cards, by media type, 2013-15
                                                                                                                            • Barclaycard continues to invest the most in above-the-line advertising
                                                                                                                              • Figure 28: Top 17 above-the line, direct mail and online display advertisers of credit and charge cards, 2013-15
                                                                                                                            • Data coverage and methodology
                                                                                                                            • Brand Research

                                                                                                                                • What you need to know
                                                                                                                                  • Brand map
                                                                                                                                    • Figure 29: Attitudes towards and usage of selected brands, May 2015
                                                                                                                                  • Key brand metrics
                                                                                                                                    • Figure 30: Key metrics for selected finance brands, May 2015
                                                                                                                                  • Brand attitudes: Sainsbury’s Bank is good at rewarding loyalty
                                                                                                                                    • Figure 31: Attitudes, by brand, May 2015
                                                                                                                                  • Brand personality: MBNA, Capital One, HSBC, Lloyds Bank and NatWest have some work to do to shake off negative brand connotations
                                                                                                                                    • Figure 32: Brand personality – Macro image, May 2015
                                                                                                                                  • American Express is closely aligned with prestige
                                                                                                                                    • Figure 33: Brand personality – Micro image, May 2015
                                                                                                                                  • Brand analysis
                                                                                                                                    • American Express and Barclaycard
                                                                                                                                      • MBNA and Capital One
                                                                                                                                        • Virgin Money, First Direct and Sainsbury’s Bank
                                                                                                                                          • Santander, NatWest and Lloyds Bank
                                                                                                                                            • HSBC
                                                                                                                                            • The Consumer – What You Need to Know

                                                                                                                                              • Decline in proportion of people owning two or more credit cards
                                                                                                                                                • The over-65s are most likely to have a credit card, but least likely to owe money
                                                                                                                                                  • Around half of all cardholders have an outstanding balance…
                                                                                                                                                    • …and just half of these expect to pay off their debt within a year
                                                                                                                                                      • 14% have a credit card in order to make use of a 0% balance transfer deal
                                                                                                                                                        • Card issuers will lose customers if they stop offering cashback and other rewards
                                                                                                                                                          • Missed payments affect a small proportion of cardholders
                                                                                                                                                          • Payment Card Ownership

                                                                                                                                                            • Debit cards are the most popular payment cards
                                                                                                                                                              • Figure 34: Ownership of credit and other payment cards, May 2015
                                                                                                                                                            • Most people own more than one type of payment card
                                                                                                                                                              • Figure 35: Payment card ownership – Cross-analysis, May 2015
                                                                                                                                                            • 39% of credit card holders own two or more credit cards
                                                                                                                                                              • Figure 36: Number of credit cards owned by credit card-holding customer base, May 2015
                                                                                                                                                            • Multiple credit card ownership has declined over the past four years
                                                                                                                                                              • Figure 37: Trend in credit card ownership, 2012-15
                                                                                                                                                            • There’s also been a slight reduction in people owning two or more store cards
                                                                                                                                                              • Figure 38: Trend in store card ownership, 2012-15
                                                                                                                                                            • Charge card ownership has remained broadly stable over the past three years
                                                                                                                                                              • Figure 39: Trend in charge card ownership, 2012-15
                                                                                                                                                          • Reasons for Credit Card Ownership

                                                                                                                                                            • 27% have a credit card because it offers cashback or other rewards…
                                                                                                                                                                • Figure 40: Reasons for having a credit or charge card, May 2015
                                                                                                                                                              • …and 40% of these would stop using their card if the rewards were removed
                                                                                                                                                                • Figure 41: Likely response if card issuer withdrew cashback or other rewards, May 2015
                                                                                                                                                            • Level of Credit Card Debt

                                                                                                                                                              • 47% of cardholders paid off their balance in full when making their last monthly payment
                                                                                                                                                                • Figure 42: Amount still owing on credit card after last monthly payment, by number of credit cards owned, May 2015
                                                                                                                                                              • Age often dictates behaviour
                                                                                                                                                                • A third of credit card borrowers think it will take them over a year to pay off their debt
                                                                                                                                                                  • Figure 43: Length of time expected to take to clear credit card balance, May 2015
                                                                                                                                                                • 7% with three of more cards expect to never clear their credit card debt
                                                                                                                                                                  • Figure 44: Length of time expected to take to clear credit card balance, by number of credit cards owned, May 2015
                                                                                                                                                                • 40% of cardholders who owe at least £5,000 expect to take more than three years to repay their debt, if at all
                                                                                                                                                                  • Figure 45: Length of time expected to take to clear credit card balance, by amount of credit card debt outstanding, May 2015
                                                                                                                                                              • Recent Credit-related Activity

                                                                                                                                                                • Within the past year, 12% of cardholders transferred their balance to a new card…
                                                                                                                                                                  • …and 13% reached or extended their credit limit
                                                                                                                                                                    • Figure 46: Credit and charge card applications, extensions, transfers and missed payments within the past 12 months, May 2015
                                                                                                                                                                  • Payment defaults affect one in six cardholders owing £2,000+
                                                                                                                                                                    • Figure 47: Credit and charge card applications, extensions, transfers and missed payments within the past 12 months, by level of credit card debt, May 2015
                                                                                                                                                                • Appendix – Definitions and Abbreviations

                                                                                                                                                                  • Product definitions
                                                                                                                                                                    • Abbreviations
                                                                                                                                                                    • Appendix – Market Size and Forecast

                                                                                                                                                                      • Forecast of gross credit card lending
                                                                                                                                                                        • Figure 48: Forecast of gross credit card lending (non-seasonally adjusted), at constant and current prices, 2015-20
                                                                                                                                                                      • Best- and worst-case scenarios
                                                                                                                                                                        • Figure 49: Forecast of gross credit card lending – best- and worst-case scenarios, at current prices, 2015-20
                                                                                                                                                                      • Forecast methodology
                                                                                                                                                                        • Fan chart explanation

                                                                                                                                                                        Companies Covered

                                                                                                                                                                        To learn more about the companies covered in this report please contact us.

                                                                                                                                                                        Credit Cards - UK - August 2015

                                                                                                                                                                        US $2,478.79 (Excl.Tax)