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UK Credit Card Market: Growth and Decline Forecast

The UK credit card market continues to grow, with a projected 5% increase in credit lending. However, Brexit uncertainty, income squeeze, and regulatory intervention may slow down future growth. Most cardholders see convenience as the main benefit, while regulators are concerned about record levels of debt. High street banks dominate the market, but differentiation between brands is limited. Mobile payment growth and the implementation of GDPR will also impact the market.

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UK Credit Card Market: Growth and Decline Forecast

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  1. September 2017 THE UK CREDIT CARD MARKET SECTOR REVIEW

  2. GROWTH CONTINUES, DECLINE FORECAST 5% growth in credit lending: debt level now £194 billion, projected to reach £240 billion by 2022 at current rate Credit card numbers static, debit cards continue to increase Trend to lower value but more frequent transactions continues, as consumers recognise value of payment by card vs cash, cheque etc. BREXIT uncertainty, squeeze on incomes and regulatory intervention likely to put a brake on future growth Number of debit, credit or charge cards in issue Sources: Mintel Credit Card Report 2017, 2016; FCA 2016 Annual Report

  3. CARDS USED FOR DEBT AND CONVENIENCE Most card-holders see main benefit as convenience: • Helps to smooth financial ups and downs • Cheaper and more flexible payment method than a loan 59% card-holders are ‘transactors’ who pay off balance monthly; 37% are ‘revolvers’ who pay minimum each month, using credit card as borrowing tool Engagement in market is strong but ’rational’: • 34% researched new offers • 45% tied in with cashback/other reward for usage Most preferred features are: • 0% interest on purchases (for defined period) • Ability to collect points/rewards • Low APR Attitudes towards credit cards for those who have them Sources: FCA 2016 Annual Report; Aviva Family Finance Report 2016

  4. RECORD DEBT PROMPTING REGULATORS’ Regulators paying close attention to promotions which seem to incentivise customers to accumulate more debt Financial Policy Committee (FPC), Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have concerns about borrowers being unable to repay Reforms may include: • Limit amount of 0% balance transfers • Reduce the length of 0% introductory offers • Stricter lending standards to prevent providers taking on too much bad debt REVIEW OF MARKET Sources: Mintel Credit Card Report 2017, Arrow Global ‘Debt Britain 2016’; The Guardian and Business Insider UK

  5. HIGH STREET BANKS PRE-EMINENT IN Limited differentiation between brands High street banks capitalise on long-standing heritage and high street presence – Santander, Halifax and Nationwide are most recognised Other brands i.e. Amex trade on a more emotive image of exclusivity while Virgin major on fun in order to achieve cut through Transactional, offer-based promotions dominate marketing strategies: • 0% balance transfer most common form of promotion • 41 months is longest interest-free, transfer balance period UNDIFFERENTIATED MARKET Jessica Emmis-Hill still features in Santander advertising, collateral and online Virgin Money continue to offer bespoke card designs Sources: Mintel 2017, UK Payments Market Summary 2016

  6. MOBILE PAYMENT GROWTH REFLECTIVE Growth in online shopping mirrored by growth in card usage: • 63% used credit card for online purchase in last 6 months: • 2016: 26% volume increase vs 2015 is 2x growth in offline card usage New mobile payment options achieving high levels of trust OF CONSUMER TRUST Sources: Accenture; Deloitte; GfK

  7. GDPR COULD IMPACT SIGNIFICANTLY General Data Protection Regulation (GDPR) laws to be enforced from May 2018 • Wide-ranging security, protection and privacy laws aim to give consumers greater control of personal data • Onus on businesses to record exactly how data is collected and processed, what permissions or consents exist Rules around First vs Third Party data clarified: • First-party marketing to existing customers/warm leads requires opt out message • Third-party marketing to cold prospects requires them to have previously opted in, meaning data sourcing with correct proof of consent much harder SIX STEPS PREPARING FOR GDPR Map data flows Set up project team Check data consents Best Practice data capture & consent Test retention/acquisition with Mail and Door Drop Evaluate, iterate

  8. CHALLENGE FOR BRANDS IS TO ENGAGE Signs that customers are rationalising the number of cards in their wallet • 41% have one credit card only • 30% prefer simplicity of fewer cards Fewer cards puts onus on brands to recognise customers’ spending habits and tailor offers which could help differentiate brands more Consumer switching due to affordable and available credit means that providers will need to think beyond the 0% and low rates to retain customers Rewards, points or cashback on spending are popular retention strategies GDPR data availability creates a challenge for brands as permission will determine whether you can build a relationship with that individual CUSTOMERS WITH TARGETED RETENTION

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