UK Plastic Cards: Outlook to 2011

Introduction

With the slowdown in the global economy the UK card market went through a severe shake up in 2009 which will continue into 2010. This report offers an insight into what shape these changes will take, and the impact on the cards industry through to 2011. By using the most up to date market indicators this report highlights what will be the key influencers in a challenging environment.

Scope

*Part of the UK Plastic Cards series this report provides insight into the recessions full impact and the first signs of recovery

*Using the latest figures, the report focuses on the continued impact from the rise in unemployment on write-offs and transaction values

*Other key indicators covered in this report include shifts in consumer card use, and the growing threat from debit

*By using the latest available market data the report offers in-depth analysis of likely forecast scenarios through to 2011

Highlights

2009 has proven to be one of the most difficult years in the history of UK plastic cards. High unemployment, economic uncertainty and record levels of credit card write offs have led to a sharp shock for the industry. The credit card market has witnessed a decline across all metrics that will continue for much of 2010.

Although unemployment is high, it has not risen as high as initially feared. Consumer insolvencies remain at an all time high but are stabilising, while credit card write offs have likely peaked. The worst of the recession appears to be over, as the market shows its first signs of improvement. Issuers need to now return to a lending strategy.

The threat posed by debit to the credit card market is growing as a result of the recession. Consumers are shifting away from all forms of debt fuelled spending. Even as credit cards fall from favour, debit cards continue to see growth. The gap between debit and credit is widening and will only become more difficult to close with time.

Reasons to Purchase

*Understand the dramatic changes affecting the cards industry, with the latest available market data providing real world insight

*Learn what the key factors that will shape the UK cards market post downturn are and the likely shape of the market in the future

*Develop strategies for dealing with the aftermath of the global downturn by having an accurate account of what is happening now


Report Highlights
2009 has proven to be one of the most difficult years in the history of UK plastic cards. High unemployment, economic uncertainty and record levels of credit card write offs have led to a sharp shock for the industry. The credit card market has
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Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of Figures 3
Table of Tables 3
The UK Credit Card Market: the Worst is Over but Trouble Remains 4
The worst may be over but challenges to revenue remain 4
Unemployment is stabilizing but remains high 4
Card write-offs show a pattern of sharp peaks followed by stability 5
In real terms, write-offs are increasing following a peak in Q3 2009 6
Card write-offs outweigh any momentary improvements in balances outstanding 7
Bankruptcy orders and IVAs have grown but show initial signs of stabilizing 8
The credit card market is shrinking as both balances and transaction values fall 9
Overdraft borrowing is in decline, as consumers are paying off their outstanding overdraft balances 11
Card numbers fell dramatically in 2009 as issuers reduced their exposure to risk 12
Consumers continue to behave in a recessionary manner 13
The value of transactions in 2009 fell below 2008 levels 14
The number of transactions has stabilized, but consumers are spending less on each transaction 15
Consumers are taking out less cash from ATMs and at subdued rates 16
Confidence and expectations have increased even though consumers' present situation remains poor 18
The long-term challenges from debit are undiminished as credit card transactions shrink 19
Datamonitor Forecasts a 2.7% Fall in the Credit Card Market in 2010 21
The credit card market will decline by 2.7% in 2010, but will grow by 2.5% in 2011 21
Consumer credit as a whole will continue to fall 21
Compared to other forms of consumer credit, credit card lending has remained relatively stable 22
The value of credit card transactions will decline in 2010, reaching £110.6 billion 23
POS credit card transactions will decline 2.6% in 2010 before rebounding by 2.8% in 2011 24
Following long-term trends, ATM credit card withdrawals will decline through to 2011 25
Macro-level indicators suggest that 2010-11 will be a difficult period 26
Debit cards will remain stable, with transaction value growth of 4.9% and 4.5% across 2010 and 2011 29
Issuers Need to Refocus on Growth Now to Reap the Benefits Later 31
Risks must be carefully managed, as write-offs continue to pose a threat 31
Issuers must remain on guard against continued threats to their revenues 31
Issuers also need to focus on growth and lending, not just defense 32
Increasing card usage must be a priority for issuers 32
Loyalty programs help drive card usage 33
Lowering interest rates will help increase spend levels 33
The market is ready for a return of charge cards 34
Consumers may be more willing to pay annual fees for a charge card 34
APPENDIX 36
Supplementary data 36
Insolvencies, card write-offs and unemployment 36
Consumer credit gross advances 37
Datamonitor's forecast for the credit card market under a neutral scenario 38
Datamonitor's forecast for the credit card market under an optimistic scenario 39
Datamonitor's forecast for the credit card market under a pessimistic scenario 41
Definitions 42
AAGR 42
APACS 42
Average transaction value 42
Balances outstanding 42
Bank of England base rate 43
CAGR 43
Charge card 43
Credit card 43
Debit card 43
Decoupled Debit 43
Methodology 43
Primary research 43
Secondary research 44
Forecast methodology 44
Further reading 45
Ask the analyst 46
Datamonitor consulting 46
Disclaimer 46
List of Tables
Table 1: Historic and forecast credit card market under a neutral scenario 21
Table 2: Historic and forecast market drivers under neutral, optimistic and pessimistic scenarios, 2005-11 28
Table 3: Historic and forecast debit card market under a neutral scenario 29
Table 4: Insolvencies, credit card write-offs and unemployment, 2005-09 36
Table 5: Year-on-year growth in, insolvencies, card write-offs and unemployment 37
Table 6: Historic and forecast consumer credit gross advances 37
Table 7: Historic and forecast year-on-year growth in consumer credit gross advances (%) 38
Table 8: Neutral scenario for the historic and forecast credit card market, 2008-11 38
Table 9: Historic and forecast drivers of the consumer credit market under a neutral scenario, 2008-11 39
Table 10: Optimistic scenario for the historic and forecast credit card market, 2008-11 39
Table 11: Historic and forecast drivers of the consumer credit market under an optimistic scenario, 2008-11 40
Table 12: Pessimistic scenario for the historic and forecast credit card market, 2008-11 41
Table 13: Historic and forecast drivers of the consumer credit market under a pessimistic scenario, 2008-11 42
Table 14: Future relevant publications 2010 45
Table 15: Future relevant publications, 2010 46
List of Figures
Figure 1: Card write-offs have likely peaked, but will remain high through 2010 6
Figure 2: Q3 2009 saw the highest level of card write-offs ever, at £1.6 billion 7
Figure 3: Write-offs constitute a major share of the change in balances outstanding in many quarters 8
Figure 4: Personal insolvencies remain high, but show signs of stabilizing 9
Figure 5: Both transactions and balances are falling, but balances show a greater rate of decline 10
Figure 6: Following a period of growth, overdraft balances are in decline 11
Figure 7: Issuers are slashing the number of dormant accounts, with a 10% fall in cards in issue 13
Figure 8: Transaction values have remained lower than the previous year, but not across every month 14
Figure 9: Transaction volumes in 2009 are broadly similar to 2008, but average values are lower 16
Figure 10: ATM withdrawals increased in 2009, but withdrawal values have remained flat 17
Figure 11: Although the present situation remains poor for many, confidence and expectations are high 19
Figure 12: The gap between credit and debit is growing as credit declines while debit continues to grow 20
Figure 13: The consumer credit market will decline to a value of £164 billion in 2010 22
Figure 14: All forms of consumer credit are forecast to improve in 2010 23
Figure 15: The value of credit card transactions will return to growth in 2011 24
Figure 16: POS credit card transactions will reach £109.7 billion in 2011 25
Figure 17: ATM withdrawals will continue their decline, and will remain below £4 billion to 2011 and beyond 26
Figure 18: Under all scenarios the credit card market will continue to decline in 2010, before rising in 2011 27
Figure 19: Debit use at the POS has been little affected by the downturn and will grow through to 2011 30

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