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Credit and Debit Cards - UK - July 2009

ISSUES IN THE MARKET
Key issues
Abbreviations
FUTURE OPPORTUNITIES
The rise of the debt card and fall of the credit card
Plastic cards for pensioners
Plenty of room to expand card use for smaller value transactions
Death of Plastic…
…but not of security concerns
MARKET IN BRIEF
Debit card growth negates fall in the number of credit cards in issue
Figure 1: Number of payment cards in issue, by type, 2003-08
Credit cards mainly a source of revolving credit
Figure 2: Gross and net credit card lending, 2004-09 (not seasonally adjusted)
Visa dominates debit cards while MasterCard controls credit cards
Plastic card transaction values rising ahead of volumes
Credit and debit card spending behaviour
Spending will be depressed as consumers focus on debt repayment
APRs rise along with lending criteria and fraudulent activity
Market share – Lloyds Banking Group takes control
Adspend on plastic cards declines
Branch network still important in distribution but future online
 KEY CONSUMER RESEARCH FINDINGS
Type of credit held
Debit card usage
Credit card usage
Consumers and type of issuer
INTERNAL MARKET ENVIRONMENT
Key points
APRs continue to rise along with lending criteria
Figure 3: Official end-of-month bank rate and monthly bank and building society overdraft and credit card interest rates, January 2002-June 2009
Shrunken target market increases competition for new business
Faster Payments Service introduced in May 2008
Value of plastic card fraud hits £596 million in 2008
Figure 4: Value of fraudulent transactions, by card type, 2002-08
Identity theft continues to be a problem
Figure 5: Number of reported cases of identity theft, 2000-08
32% rise in credit card complaints to the Ombudsman
 CHANGING REGULATORY LANDSCAPE
OFT to conduct an investigation into consumer credit
FSA to tighten control of retail banking activities
New FSA rules replacing the Banking Code
Government White paper aims to curb irresponsible lending
The Payment Service Directive
Consumer Credit Directive
E-Money Directive
Interchange investigations
BROADER MARKET ENVIRONMENT
Key points
Economic conditions likely to hinder spending
Consumer confidence rising from the depths but still low
Figure 6: Monthly consumer confidence index, June 1988-June 2009
Expected financial activity focuses mostly on debt repayment
Figure 7: Savings, investment, borrowing and debt repayment – consumers’ expected activity, quarterly indices, 2002-09 (Q2)
Unemployment – 7.2% and rising?
Figure 8: Working age unemployment rate, seasonally adjusted, year to March 2004-09
Fall in inflation and interest rates has eased pressure on budgets…
Figure 9: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, June 2002-June 2009
Increasing internet penetration good for the plastic card industry
Figure 10: British internet penetration at home/work/place of study or elsewhere, April 2002-January 2009
COMPETITIVE CONTEXT
Key points
Decline of the cheque
Figure 11: Volume of cheque* and plastic card** and automated payment^ transactions, millions, 2002-18
Store card market shrinking as retailers issue own-brand credit cards
Total borrowing on overdrafts hits £10 billion in 2008
Figure 12: Total borrowing on overdrafts, 2003-08
A sharp decline in unsecured personal loans
Figure 13: Gross and net consumer credit (excluding credit card lending), June 2004-April 2009 (not seasonally adjusted)
SWOT ANALYSIS
Figure 14: Credit and debit card SWOT analysis, July 2009
WHO’S INNOVATING?
Key points
Emue – a card with a built-in one-time password generator
O2 trials mobile wallet technology concept
Orange and Barclaycard also partner up for mobile payments technology
iPhone Credit Card Terminal
Citi experiments with Facebook and MySpace to generate new business
Google looking into credit score-based targeted advertising
Virtual prepaid cards have failed to gain widespread appeal
‘Dual marketing messages’ – advertising to teens and parents
Discover ‘Current’ card giving parents more control over teen spending
Marks & Spencer Premium Club to increase in-store shopping
Lloyds debit card holders can use ‘spare change’ to build up savings
Prepaid travel cards for overseas spending
TRADE PERSPECTIVE
Impact of the recession
More focus on retention
 CHANGING REGULATORY ENVIRONMENT
Debit vs. credit card usage
Overseas credit and debit card usage
Cashless society – still some way off
Prospects for innovation
MARKET SIZE AND FORECAST
Key points
Credit card debt falls from its mid-2000s peak
Figure 15: Outstanding credit card balances, not seasonally adjusted, 2004-09
Credit cards mainly used as revolving credit
Figure 16: Gross and net credit card lending, 2004-09 (not seasonally adjusted)
Most pay off their balances in full each month
Figure 17: Trends in how balance settled for credit card, 2004-08
Debit card growth negates fall in the number of credit cards in issue
Figure 18: Number of payment cards in issue, by type, 2002-08
Multiple credit card ownership on the decline
Figure 19: Trends in number of credit cards held, 2004-08
Debit cards responsible for 73% of transaction volumes
Figure 20: Volume of UK purchases, by card type, 2002-08
Value of purchases on debit and charge cards continues to rise
Figure 21: Value of UK purchases, by card type, 2002-08
Average purchase values highest for charge cards
Figure 22: Average purchase value in the UK, by card type, 2002-08
Debit cards most frequently used type of card
Figure 23: Card usage frequency for purchases in the UK, by card type, 2002-08
 FORECAST
Credit Cards – will be used less frequently but for higher value purchases
Figure 24: Forecast of credit cards: Total value and volume of purchases, 2004-14
Debit Cards – average purchase value likely to fall over time
Figure 25: Forecast of debit cards: Total value and volume of purchases, 2004-14
Factors used in the forecast
SEGMENT PERFORMANCE
Key points
 DEBIT CARDS
Visa dominates UK debit card market
Figure 26: Debit cards in issue, by scheme, 2002-08
Visa debit card represents over half of all transaction volumes
Figure 27: Debit card transaction volumes, by scheme, 2002-08
Transaction values rising slightly ahead of volume
Figure 28: Debit card transaction value, by scheme, 2002-08
Average transaction values around £50
Figure 29: Debit card average transaction values, by scheme, 2002-08
Cash acquisition on the rise
Figure 30: Debit card cash acquisition, by scheme, 2002-08
 CREDIT AND CHARGE CARDS
MasterCard taking over where Visa took off
Figure 31: Credit and charge cards in issue, by scheme, 2002-08
Overall transaction volumes relatively flat
Figure 32: Credit and charge card transaction volumes, by scheme, 2002-08
Purchase volumes also stagnate
Figure 33: Credit and charge card purchase volumes, by scheme, 2002-08
Value of credit and charge card purchases continues to rise
Figure 34: Credit and charge card purchase values, by scheme, 2002-08
Average purchase values considerably higher for ‘other’ issuers
Figure 35: Average credit and charge card purchase values, by scheme, 2002-08
Cash acquisition on credit and charge cards decreasing
Figure 36: Credit and charge card cash acquisition volumes, by scheme, 2002-08
Figure 37: Credit and charge card cash acquisition value, by scheme, 2002-08
SPENDING BEHAVIOUR
Key points
Highest purchase volumes on food and drink
Figure 38: Credit and debit card purchase* volumes millions, by sector, 2008
Consumers spend twice as much on debit cards
Figure 39: Credit and debit card purchase* values £ millions, by sector, 2008
Average value of purchases falling in most categories
Figure 40: Average value of purchases*, by sector, 2003-08
Overseas – credit cards are still favoured
Figure 41: Summary of credit and debit card transactions outside the UK, annual transaction value and volume, 2008
MARKET SHARE
Key points
 DEBIT CARDS
Lloyds Banking Group leads the current account market
Figure 42: Main or primary current account providers, by main banking groups, March 2009
 CREDIT CARDS
Lloyds Banking Group grabs top spot from Barclays with HBOS takeover
Figure 43: Credit card provider market share, by brand, April 2009
COMPANIES AND PRODUCTS
 MAJOR PLAYERS
American Express
Barclays/Barclaycard
Capital One
HSBC
Lloyds Banking Group
Marks & Spencer Money
MBNA
Royal Bank of Scotland
 OTHER RECENT COMPANY NEWS
O2 to launch 02 Money
Nationwide introduces new overseas use charges
Egg launches mass-market credit card with a monthly fee
Tesco plans further activity in financial services
BRAND COMMUNICATION AND PROMOTION
Key points
Plastic card adspend down by a fifth in 2008
Figure 44: Plastic card adspend, by category, 2006-08
69% of advertising done via direct mail
Figure 45: Plastic card adspend, by media type, 2006-08
Most major plastic card providers have cut adspend
Figure 46: Top ten plastic card adspend companies, 2006-08
Average monthly adspend peaks at the start and end of the year
Figure 47: Adspend seasonality based on average monthly adspend, 2006-08
BRAND ELEMENTS
Key points
 BRAND MAP
Figure 48: Attitudes towards and usage of credit and debit card brands, May 2009
 BRAND QUALITIES OF CREDIT AND DEBIT CARD BRANDS
Banks most competent, but Virgin most vibrant
Figure 49: Personalities of various credit and debit card brands, May 2009
 EXPERIENCE OF CREDIT AND DEBIT CARD BRANDS
Barclaycard most used, but Capital One losing custom?
Figure 50: Consumer usage of various credit and debit card brands, May 2009
 BRAND INTENTIONS FOR CREDIT AND DEBIT CARD BRANDS
Virgin Money most considered, but credit appetite suppressed
Figure 51: Consideration of various credit and debit card brands, May 2009
 BRAND SATISFACTION FOR CREDIT AND DEBIT CARD BRANDS
Tesco has best customer endorsement
Figure 52: Satisfaction with various credit and debit card brands, May 2009
 BRAND COMMITMENT TO CREDIT AND DEBIT CARD BRANDS
Lloyds TSB has top commitment
Figure 53: Commitment to various credit and debit card brands, May 2009
 BARCLAYCARD
What the consumer thinks
Figure 54: Attitudes towards the Barclaycard brand, May 2009
 CAPITAL ONE
What the consumer thinks
Figure 55: Attitudes towards the Capital One brand, May 2009
 LLOYDS TSB
What the consumer thinks
Figure 56: Attitudes towards the Lloyds TSB brand, May 2009
 AMERICAN EXPRESS
What the consumer thinks
Figure 57: Attitudes towards the American Express brand, May 2009
 TESCO
What the consumer thinks
Figure 58: Attitudes towards the Tesco brand, May 2009
CHANNELS TO MARKET
Key points
Over a quarter of consumers apply for credit cards in a branch
Figure 59: How consumers applied for credit cards, 2008
70% of internet users have opened a credit card online…
Figure 60: Method used to switch/open new account, by product type, April 2008
…but debit cards are more likely to be obtained via the branch network
The future of distribution is online
Figure 61: Online purchasing behaviour for current accounts and credit cards, September 2008
THE CONSUMER – TYPE OF CREDIT HELD
Key points
Two in five borrowing using unsecured debt
Figure 62: Forms of credit held with outstanding balances, 2008 and 2009
Some have debt from multiple sources
Figure 63: Cross-ownership of types of outstanding credit, April 2009
Middle-aged and more affluent most likely to have consumer debt
Figure 64: Outstanding credit held, by gender, age and socio-economic group, April 2009
Young and less affluent lack access to most forms of consumer credit
THE CONSUMER – CREDIT CARD BRAND SHARE
Key points
Barclaycard and Lloyds TSB vie for top spot
Figure 65: Credit card ownership and provider share, April 2009
Nearly one in eight hold a credit card with one of the big four banks
Figure 66: Credit card providers, April 2009
Retailers a hit with the ladies while men prefer direct providers
Figure 67: Provider share, by gender and age, April 2009
Wealthy spread their business among multiple providers
Figure 68: Provider share, by socio-economic group and gross annual household income, April 2009
Internet users going direct
Figure 69: Provider share, by technology users, internet usage frequency and web use, April 2009
THE CONSUMER – DEBIT CARD USAGE
Key points
Still plenty of scope to expand debit card usage
Figure 70: Statements on debit card, April 2009
Younger consumers will drive growth in lower-value transactions
Figure 71: Most popular statements on debit card, by demographics, April 2009
Less affluent present opportunities to expand debit card usage further
Figure 72: Most popular statements on debit card, by demographics, April 2009
Debit cards, media and technology
Figure 73: Most popular statements on debit card, by demographics, April 2009
THE CONSUMER – CREDIT CARD USAGE
Key points
Over half happy with their credit cards…
Figure 74: Credit card attitude and behaviour statements, April 2009
…but little interest in added benefits
Retailer issuers benefiting from backlash against traditional providers
Figure 75: Credit card attitude and behaviour statements, by credit card provider, April 2009
25-44-year-olds show greatest level of engagement
Figure 76: Credit card attitude and behaviour statements, by demographics, April 2009
Wealthy show most interest in rewards and balance transfers
Figure 77: Credit card attitude and behaviour statements, by demographics, April 2009
Media, technology and credit card usage
Figure 78: Credit card attitude and behaviour statements, by demographics, April 2009
THE CONSUMER – TARGETING OPPORTUNITIES
Key points
 KEY TARGET GROUPS
Figure 79: Credit card attitudinal groups, april 2009
Passively Content
Rate Tarts
APR and Safety
Seeking Rewards
Seven in ten Rate Tarts have an outstanding balance on their credit card
Figure 80: Forms of credit with an outstanding balance, by target groups, April 2009
Passively Content sticking with the high street banks
Figure 81: Credit card providers, by target groups, April 2009
Rate tarts concentrated among the 25 to 54s
Figure 82: Target groups, by demographics, April 2009
Seeking Rewards populated by the wealthy
Figure 83: Target groups, by demographics, April 2009
Key target groups and media and technology usage
Figure 84: Target groups, by demographics, April 2009
APPENDIX – THE CONSUMER – TYPES OF CREDIT HELD
Figure 85: Most popular money currently owed, by demographics, April 2009
Figure 86: Next most popular money currently owed, by demographics, April 2009 (continued)
APPENDIX – THE CONSUMER – BRAND SHARE
Figure 87: Provider share, by demographics, April 2009
APPENDIX – THE CONSUMER – DEBIT CARD USAGE
Figure 88: Most popular statements on debit card, by demographics, April 2009
APPENDIX – THE CONSUMER – CREDIT CARD USAGE
Figure 89: Most popular statements on credit cards, by demographics, April 2009
Figure 90: Next most popular statements on credit card, by demographics, April 2009 (continued)

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