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Credit Cards - UK - July 2012

The UK credit card market is undergoing a period of transition in the context of shifting societal and political attitudes towards borrowing and debt. During the boom years, many individuals and households built up substantial amounts of personal borrowings relative to their income. Being in debt was no longer a social taboo; credit was easily available and relatively cheap; and the debt was easily shouldered. The economy was in a good shape, with low inflation, low interest rates and low unemployment, and confidence was running high.

The 2007-09 financial crisis put an end to all that, and three years on we’re still feeling the repercussions. For one, the credit card market is now much leaner and meaner as a result. Despite still operating in a fairly crowded marketplace, there are fewer suppliers than there were pre-crisis, and competitive pressures have eased.

This report examines how all these issues and challenges are reshaping the market. Drawing on a range of industry and consumer survey data, it provides a comprehensive and updated overview of the size and composition of the market, an evaluation of new technological and product innovations and an investigation into cardholder attitudes, behaviours and preferences.

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Table of contents

  1. Introduction

      • Product definitions
        • Abbreviations
        • Executive Summary

            • The market
              • Gross credit card lending is predicted to keep pace with inflation over the next few years
                • Figure 1: Forecast of gross credit card lending (at current prices) – fan chart, 2007-17
              • Credit card spending
                • Market factors
                  • Current economic environment
                    • Balance transfer activity
                      • Household debt lending
                        • Margins under pressure
                          • Rival products
                            • Recent regulatory developments
                              • Companies, brands and innovation
                                • Product innovation
                                  • Largest card issuers
                                    • Figure 2: Estimated group share of UK credit and charge card market, May 2012
                                  • Advertising expenditure
                                    • Distribution trends
                                      • Figure 3: Channel used to apply for credit card, 2011
                                    • The consumer
                                      • Card ownership
                                        • Figure 4: Ownership of the main types of payment card, May 2012
                                      • Amount owing on credit card
                                        • Figure 5: Amount owing on credit card after making last monthly payment, May 2012
                                      • New business activity
                                        • Figure 6: Credit card applications, extensions, transfers and payments within the past 12 months, May 2012
                                      • Financial health of credit card holders
                                        • Payment behaviour and preferences
                                          • Figure 7: Payment preferences, by total sample and credit card holders, May 2012
                                        • What we think
                                        • Issues in the Market

                                            • What is the size of the UK cardholder customer base?
                                              • How did the market perform in 2011?
                                                • How important are loyalty schemes to the acquisition of new customers?
                                                  • And how about bad debts?
                                                    • What is the short-term outlook for the market?
                                                    • Future Opportunities

                                                      • Making life easier for those juggling multiple debts
                                                        • Stress the positive to counter the negative
                                                          • New mobile and smartphone capability will drive evolution
                                                          • Internal Market Environment

                                                            • Key points
                                                              • Consumer credit net lending has risen over the past two years
                                                                • Figure 8: Net consumer credit lending (not seasonally adjusted), 2007-11
                                                              • Demand for consumer credit plunges
                                                                • Figure 9: Intended consumer credit activities, Q1/Q2 2006-Q1/Q2 2012
                                                              • Card issuers enjoy a period of improved interest margins
                                                                • Figure 10: Official bank base rate, three-month LIBOR and effective overdraft and credit card interest rates (monthly average), January 2005-May 2012
                                                              • Update on new reforms affecting the consumer credit industry
                                                                • Credit card customers to receive annual statements in new initiative
                                                                  • Cost of card fraud continues to fall
                                                                    • Figure 11: Annual plastic fraud losses on UK-issued cards, 2007-11
                                                                • Broader Market Environment

                                                                  • Key points
                                                                    • Tough economic backdrop lessens consumer appetite for credit
                                                                      • Still no real improvement in consumer finances
                                                                        • Figure 12: Personal financial situation, April 2009-May 2012
                                                                      • Consumer sentiment deeply pessimistic
                                                                        • Figure 13: UK consumer confidence, March 1988-May 2012
                                                                      • Debt-to-income ratio starts to fall back
                                                                        • Figure 14: The value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 2000-11
                                                                      • Credit card lending accounts for roughly half of consumer debt write-offs
                                                                        • Figure 15: Quarterly write-offs of lending to individuals, by sector, March 2006-March 2012
                                                                    • Competitor Products

                                                                      • Key points
                                                                        • Rival products
                                                                          • Debit cards versus credit and charge cards
                                                                            • Cards in issue
                                                                              • Figure 16: Number of debit, credit and charge cards in issue, 2001-11
                                                                            • Size of the cardholder customer base
                                                                              • Usage activity
                                                                                • Overseas card spending
                                                                                  • Cash withdrawal activity
                                                                                    • Debit cards account for a rising share of payments
                                                                                      • Figure 17: Share of payments – UK, by volume, 2000 and 2010
                                                                                    • Credit cards drive growth in gross consumer credit lending
                                                                                      • Figure 18: Gross consumer credit lending, by sector (not seasonally adjusted), 2007-11
                                                                                    • The total value of credit card debt contracted by 5% in 2011
                                                                                      • Figure 19: Amount of credit card and other unsecured lending outstanding (not seasonally adjusted), 2005-11 (at year end)
                                                                                    • Growing competition from payday loans
                                                                                      • Size of the payday loan market
                                                                                        • The target market
                                                                                          • Typical customer expenditure
                                                                                            • Leading brands in this market
                                                                                            • Market SWOT Analysis

                                                                                                • Figure 20: Credit card market – summary of strengths, weaknesses, opportunities and threats, 2012
                                                                                            • Who’s Innovating?

                                                                                              • Key points
                                                                                                • Card issuers launch enticing 0% deals to attract new business
                                                                                                  • Card loyalty schemes continue to evolve, with more targeted rewards
                                                                                                    • The emergence of new forms of payment: contactless cards
                                                                                                      • NFC-enabled mobile payments
                                                                                                        • Mobile wallets
                                                                                                          • The race is on for a unified platform
                                                                                                            • Awareness of mobile wallets is currently fairly low, though this is to be expected
                                                                                                              • Figure 21: Awareness and usage of new payment technology, May 2012
                                                                                                            • Credit cards fight back: Amex partners with Foursquare to offer location-based deals to UK cardholders
                                                                                                            • Market Size and Forecast

                                                                                                              • Key points
                                                                                                                • Credit card spending grew by 6% in 2011
                                                                                                                  • Figure 22: Volume and value of credit and charge card purchase transactions – UK, 2007-11
                                                                                                                • Credit cards are used much less frequently for cash acquisition
                                                                                                                  • Figure 23: Volume and value of credit and charge card cash withdrawals – UK, 2007-11
                                                                                                                • Balance transfer activity grew for the first time in six years in 2011
                                                                                                                  • Overseas transactions fell in 2011
                                                                                                                    • Figure 24: Summary of credit and charge card transactions made outside the UK, 2011
                                                                                                                  • Outlook for credit card spending in the UK
                                                                                                                    • Net credit card lending continues to decline
                                                                                                                      • Figure 25: Gross and net credit card lending (non-seasonally adjusted), 2006-12
                                                                                                                    • Forecast
                                                                                                                      • Figure 26: Forecast of gross credit card lending (non-seasonally adjusted) – fan chart, 2007-17
                                                                                                                      • Figure 27: Forecast of net credit card lending (non-seasonally adjusted) – fan chart, 2007-17
                                                                                                                      • Figure 28: Forecast of gross and net credit card lending (non-seasonally adjusted), at constant and current prices, 2012-17
                                                                                                                    • Forecast methodology
                                                                                                                      • Fan chart explanation
                                                                                                                      • Market Share

                                                                                                                        • Key points
                                                                                                                          • Barclaycard tops credit card rankings by a clear margin…
                                                                                                                            • Figure 29: Ranking of the largest credit and charge card providers in the UK, by share of customers, May 2012
                                                                                                                          • …but on a group basis, LBG is the largest credit card issuer in the UK
                                                                                                                            • Figure 30: Estimated group share of UK credit and charge card market, May 2012
                                                                                                                          • Two card schemes dominate
                                                                                                                          • Companies and Products

                                                                                                                              • Lloyds Banking Group
                                                                                                                                  • Figure 31: Summary of credit cards offered by Lloyds TSB, June 2012
                                                                                                                                  • Figure 32: Summary of credit cards offered by Halifax, June 2012
                                                                                                                                  • Figure 33: Key financial data for Lloyds Banking Group‘s retail division, 2010 and 2011
                                                                                                                                • Barclaycard
                                                                                                                                    • Figure 34: Summary of selected credit cards offered by Barclaycard, June 2012
                                                                                                                                    • Figure 35: Key financial data for Barclaycard, 2010 and 2011
                                                                                                                                  • HSBC Group
                                                                                                                                      • Figure 36: Summary of credit cards offered by HSBC and partners, June 2012
                                                                                                                                      • Figure 37: Key financial data of HSBC Bank Plc, 2010 and 2011
                                                                                                                                    • MBNA Europe
                                                                                                                                        • Figure 38: Summary of selected credit cards offered by MBNA and partners, June 2012
                                                                                                                                        • Figure 39: Summary of credit cards offered by Virgin Money (and issued by MBNA), June 2012
                                                                                                                                      • RBS Group
                                                                                                                                          • Figure 40: Summary of credit cards offered by RBS and NatWest, June 2012
                                                                                                                                          • Figure 41: Key financial data for RBS Group’s UK Retail Banking Division, 2010 and 2011
                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                        • Key points
                                                                                                                                          • The subprime crisis led to sharp drop in industry adspend
                                                                                                                                            • 2011 saw only a modest increase in credit card adspend
                                                                                                                                              • Figure 42: Advertising expenditure on credit and charge cards, by product type, 2009-11
                                                                                                                                            • Direct mail accounted for over half of the adspend in 2011
                                                                                                                                              • Figure 43: Advertising expenditure on credit and charge cards, by media type, 2009-11
                                                                                                                                            • Barclaycard overtakes Amex to become the highest-spending advertiser
                                                                                                                                              • Figure 44: Top ten advertisers of credit and charge cards, 2009-11
                                                                                                                                            • A note on NMR data
                                                                                                                                            • Brand Research

                                                                                                                                              • Brand map
                                                                                                                                                  • Figure 45: Attitudes towards and usage of brands in the credit card sector, March 2012
                                                                                                                                                • Correspondence analysis
                                                                                                                                                  • Brand attitudes
                                                                                                                                                    • Figure 46: Attitudes, by brands active in the credit card market, March 2012
                                                                                                                                                  • Brand personality
                                                                                                                                                    • Figure 47: Credit card brand personality – macro image, March 2012
                                                                                                                                                    • Figure 48: Credit card brand personality – micro image, March 2012
                                                                                                                                                  • Brand experience
                                                                                                                                                    • Figure 49: Usage of brands active in the credit card market, March 2012
                                                                                                                                                    • Figure 50: Satisfaction with various brands active in the credit card market, March 2012
                                                                                                                                                    • Figure 51: Consideration of brands active in the credit card market, March 2012
                                                                                                                                                    • Figure 52: Perceptions of current brand performance for brands active in the credit card market, March 2012
                                                                                                                                                    • Figure 53: Brand recommendation for brands active in the credit card market– Net Promoter Score, March 2012
                                                                                                                                                  • Brand index
                                                                                                                                                    • Figure 54: Brand index for brands active in the credit card market, March 2012
                                                                                                                                                    • Figure 55: Credit card brand index vs. recommendation, March 2012
                                                                                                                                                  • Target group analysis
                                                                                                                                                    • Figure 56: Target groups, March 2012
                                                                                                                                                    • Figure 57: Credit card brand usage, by target groups, March 2012
                                                                                                                                                  • Group One – Conformists
                                                                                                                                                    • Group Two – Simply the Best
                                                                                                                                                      • Group Three – Shelf Stalkers
                                                                                                                                                        • Group Four – Habitual Shoppers
                                                                                                                                                          • Group Five – Individualists
                                                                                                                                                          • Channels to Market

                                                                                                                                                            • Key points
                                                                                                                                                              • An increasing proportion of credit card applications are being made online
                                                                                                                                                                • Figure 58: Channel used to apply for credit card, 2008-11
                                                                                                                                                            • Ownership of Credit and Other Payment Cards

                                                                                                                                                              • Key points
                                                                                                                                                                • Survey background
                                                                                                                                                                  • Two thirds of adult internet users in Britain have a credit card
                                                                                                                                                                    • Figure 59: Number of payment cards owned, by card type, May 2012
                                                                                                                                                                • Impact of Economic Environment on Finances

                                                                                                                                                                  • Key points
                                                                                                                                                                    • A small minority of credit card holders are struggling or in financial trouble
                                                                                                                                                                        • Figure 60: Current financial situation, by total sample and credit card holders, May 2012
                                                                                                                                                                      • More than two fifths say they are worse off now than a year ago
                                                                                                                                                                        • Figure 61: Financial situation compared to a year ago, by total sample and credit card holders, May 2012
                                                                                                                                                                      • A quarter are confident about their financial position over the next year
                                                                                                                                                                        • Figure 62: Financial prospects over the coming year, by total sample and credit card holders, May 2012
                                                                                                                                                                      • A quarter of card holders are spending money more carefully
                                                                                                                                                                        • Figure 63: Impact of economic downturn on managing money and approach to debt, by total sample and credit card holders, May 2012
                                                                                                                                                                    • Level of Credit Card Debt

                                                                                                                                                                      • Key points
                                                                                                                                                                        • The more credit cards people have, the greater their debt
                                                                                                                                                                          • Figure 64: Amount owing on credit card after making last monthly payment, by number of credit cards owned, May 2012
                                                                                                                                                                        • Two fifths of cardholders have concerns about their overall debts
                                                                                                                                                                          • Figure 65: Attitudes towards level of debt, by credit card holders with an outstanding balance, May 2012
                                                                                                                                                                        • Less than a quarter think credit card issuers are ‘responsible’ lenders
                                                                                                                                                                          • Figure 66: Perception of how responsible credit card issuers are towards lending, May 2012
                                                                                                                                                                      • Recent Card Activity

                                                                                                                                                                        • Key points
                                                                                                                                                                          • A quarter of new card applications were rejected in the year to May 2012
                                                                                                                                                                            • Figure 67: Credit card applications, extensions, transfers and payments within the past 12 months, by number of credit cards held, May 2012
                                                                                                                                                                          • Payment defaults affect over one in ten cardholders owing £1,000+
                                                                                                                                                                            • Figure 68: Credit card applications, extensions, transfers and payments within the past 12 months, by credit card balance after last payment, May 2012
                                                                                                                                                                        • Card Issuer

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Card issuer rankings are different among those with multiple cards
                                                                                                                                                                                • Figure 69: Company issuing credit or charge card, by number of cards held, May 2012
                                                                                                                                                                              • Outstanding card balances vary between providers
                                                                                                                                                                                • Figure 70: Amount owing on credit card after making last monthly payment, by top 12 card issuers, May 2012
                                                                                                                                                                              • Balance transfer activity is higher among Barclaycard holders
                                                                                                                                                                                • Figure 71: Credit card applications, extensions, transfers and payments within the past 12 months, by top 12 card issuers, May 2012
                                                                                                                                                                            • Payment Preferences

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Most card users still like to carry some cash on them at all times
                                                                                                                                                                                    • Figure 72: Attitudes toward different payment methods, by type of payment card held, May 2012
                                                                                                                                                                                  • Scope to increase aware of the added protection offered by credit cards
                                                                                                                                                                                  • Credit Card Usage and Factors Affecting Choice

                                                                                                                                                                                    • Key points
                                                                                                                                                                                      • A third of credit card holders use their card at least once a week
                                                                                                                                                                                        • Figure 73: Frequency of credit card usage, 2011
                                                                                                                                                                                      • Almost a third use their credit card to pay for non-grocery items
                                                                                                                                                                                        • Figure 74: Types of goods and services paid for by credit card in the past 12 months, 2011
                                                                                                                                                                                      • One in five credit card holders have monthly spend of more than £500
                                                                                                                                                                                        • Figure 75: Average amount spent on credit card per month, 2011
                                                                                                                                                                                      • Most customers pay off their balance in full each month
                                                                                                                                                                                        • Figure 76: Outstanding balance settlement for each month, 2011
                                                                                                                                                                                      • No annual fee and the interest rate are the most important factors
                                                                                                                                                                                        • Figure 77: The most important factor influencing choice of credit card, 2011
                                                                                                                                                                                    • Appendix – Market Forecast

                                                                                                                                                                                        • Figure 78: Best and worst case scenario forecast of gross credit card lending (non-seasonally adjusted) – fan chart, 2012-17
                                                                                                                                                                                    • Appendix – Brand Research

                                                                                                                                                                                        • Figure 79: Brand usage, March 2012
                                                                                                                                                                                        • Figure 80: Brand commitment, March 2012
                                                                                                                                                                                        • Figure 81: Brand momentum, March 2012
                                                                                                                                                                                        • Figure 82: Brand diversity, March 2012
                                                                                                                                                                                        • Figure 83: Brand satisfaction, March 2012
                                                                                                                                                                                        • Figure 84: Brand recommendation, March 2012
                                                                                                                                                                                        • Figure 85: Brand attitude, March 2012
                                                                                                                                                                                        • Figure 86: Brand image – macro image, March 2012
                                                                                                                                                                                        • Figure 87: Brand image – micro image, March 2012
                                                                                                                                                                                        • Figure 88: Demographic profile of target groups, March 2012
                                                                                                                                                                                        • Figure 89: Psychographic segmentation, by target groups, March 2012
                                                                                                                                                                                        • Figure 90: Brand usage, by target group, March 2012
                                                                                                                                                                                      • Brand index
                                                                                                                                                                                        • Figure 91: Brand index, March 2012
                                                                                                                                                                                    • Appendix – Ownership of Credit and Other Payment Cards

                                                                                                                                                                                      • Plastic card ownership
                                                                                                                                                                                        • Figure 92: Types of payment card owned, by demographics, May 2012
                                                                                                                                                                                      • Number of credit cards held
                                                                                                                                                                                        • Figure 93: Number of credit cards held, by demographics, May 2012
                                                                                                                                                                                      • Profile of credit card holders
                                                                                                                                                                                        • Figure 94: Demographic profile of credit and charge card holders versus total sample, May 2012
                                                                                                                                                                                    • Appendix – Level of Credit Card Debt

                                                                                                                                                                                        • Figure 95: Total amount owing on credit card(s) after making last monthly payment, by demographics, May 2012
                                                                                                                                                                                    • Appendix – Credit Card Issuers

                                                                                                                                                                                      • Customer profile
                                                                                                                                                                                        • Figure 96: Demographic profile of the top six card issuers versus all credit card holders, May 2012
                                                                                                                                                                                        • Figure 97: Demographic profile of the next six card issuers versus all credit card holders, May 2012
                                                                                                                                                                                    • Appendix – Recent Card Activity

                                                                                                                                                                                        • Figure 98: Card application, extension and transfer activity within the past 12 months, by demographics, May 2012
                                                                                                                                                                                    • Appendix – Payment Preferences

                                                                                                                                                                                        • Figure 99: Attitudes toward different payment methods, by demographics, May 2012

                                                                                                                                                                                    Companies Covered

                                                                                                                                                                                    • Amazon.co.uk
                                                                                                                                                                                    • American Express Company (The)
                                                                                                                                                                                    • Apple Computer UK Ltd
                                                                                                                                                                                    • Bank of America Corporation
                                                                                                                                                                                    • Barclaycard
                                                                                                                                                                                    • Barclays Bank plc
                                                                                                                                                                                    • Citigroup Private Bank
                                                                                                                                                                                    • First Direct
                                                                                                                                                                                    • Firstplus Financial Group
                                                                                                                                                                                    • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                    • Hilton Group plc
                                                                                                                                                                                    • HSBC Private Bank (UK) Limited
                                                                                                                                                                                    • InterContinental Hotels Group PLC
                                                                                                                                                                                    • John Lewis Partnership
                                                                                                                                                                                    • LG Electronics (UK)
                                                                                                                                                                                    • Liverpool Football Club
                                                                                                                                                                                    • Lloyds Banking Group
                                                                                                                                                                                    • Lloyds TSB Insurance
                                                                                                                                                                                    • Manchester United PLC
                                                                                                                                                                                    • Marks & Spencer
                                                                                                                                                                                    • MasterCard UK
                                                                                                                                                                                    • MBNA Europe
                                                                                                                                                                                    • National Exhibition Centre
                                                                                                                                                                                    • NatWest
                                                                                                                                                                                    • Nokia Corporation (UK)
                                                                                                                                                                                    • Research in Motion Uk Ltd.
                                                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                                                    • RSPCA
                                                                                                                                                                                    • Superbreak Mini Holidays
                                                                                                                                                                                    • The NEC Group
                                                                                                                                                                                    • The Scottish Rugby Union plc
                                                                                                                                                                                    • Virgin Atlantic Airways Limited
                                                                                                                                                                                    • Virgin Holidays
                                                                                                                                                                                    • Virgin Money

                                                                                                                                                                                    Credit Cards - UK - July 2012

                                                                                                                                                                                    £1,750.00 (Excl.Tax)