Sizing and Forecasting the UK Plastic Card Market

Introduction
Sizing and Forecasting the UK Plastic Card Market provides an up to date overview of the size and composition of the UK plastic cards market from 2005 through to 2009, alongside forecasts through to 2014. This includes not only concrete market sizing data incorporating number of cards and balances outstanding, but also an analysis of the systemic challenges facing the industry.

Features and benefits
Includes UK market sizing from 2005-2009, with metrics on card numbers, transactions, POS, ATMs, fraud and outstandings
Provides forecasts covering the credit, debit, private label and charge card markets under a range of potential economic scenarios
This brief analyses the latest macroeconomic data to provide an up to the minute view on the issues likely to affect cards in the near term
Sizing and Forecasting the UK Plastic Card Market looks at both long term challenges affecting payments as well as emerging trends
Highlights
Credit card write offs continue to reach record highs, reaching £2.1 billion in Q2 2010. The severity of card writes offs means issuers will struggle to see any growth in balances outstandings, even as transaction value begin to rise. With unemployment remaining high and consumer confidence falling, credit card revenues will remain problematic

The total value of transaction rose in 2009 due to debit, reaching nearly £600 billion. However pay later cards have struggled. The number of credit cards in issue fell from 67.2 million cards in issue in 2008 to 59.3 million in 2009. The fall in both demand and availability of credit cards will limit future market growth.

Despite the difficult economic situation the total cards market will see transaction values rise by a CAGR of 5.6% , reaching a value of £726 billion by 2014. Cards will continue to be used in everyday situations, for lower value transactions and will continue to see growth as a key feature in the UK consumer and payments environment

Your key questions answered
How has the recession affected the UK payments market? Are there any signs of growth?
How many cards are in issue in the UK for debit, credit, charge and private label cards?
Why are write offs such a problem for credit card issuers? How high are they?
How will the market for payment cards look over the next five years? What's driving this?
Are consumers turning their backs on consumer credit?

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TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
UK Plastic Card Market in Review and Future Outlook 7
Cards grew by a CAGR of 8.5% from 2005 to 2009, but growth will be weaker to 2014 7
Economic indicators remain mixed, with signs that consumer confidence is falling 8
Consumer confidence is falling again and may lead to a slowdown in spending 9
Unemployment figures are plateauing, but card write-offs remain very high and will limit market growth 10
As balances continue to fall, transaction values are beginning to rise 14
In line with long-term trends, balance transfers are decreasing 19
Market Statistics and Key Trends 22
2009 has been a difficult year for the cards market in many areas 22
The value of all card transactions is rising 22
The total number of cards in issue has fallen, with only debit showing growth 22
The number of credit card holders is falling 25
Despite the recession and the decline in card numbers, transactions increased in 2009 27
Transaction values are increasing as a result of the growth of debit 29
Charge cards hold the highest average transaction value but this began to decline in 2009 31
Purchases account for 64% of all UK card transactions 34
Debit cards showed the highest rate of growth in transaction value by type between 2005 and 2009 35
Credit transactions are dominated by purchases 36
Charge cards are now in decline as business expense usage declines 38
Card scheme market shares have been volatile over the past five years 39
MasterCard now leads the credit card market 40
The charge card market has seen the consolidation of American Express’ historic lead 41
The increase in POS terminals has helped to drive the growth in transaction volumes 42
Bank owned ATMs are now driving growth, as independent ATMs continue to decline 43
The number of fraudulent transactions is falling 44
The successful implementation of chip and PIN led to an increase in card-not-present fraud 45
The value of all fraud fell in every category in 2009 46
Forecasting the UK Payment Cards Market 48
Despite the recession, the UK cards market will continue to grow through to 2014 48
Datamonitor forecasts annual growth of 5.6% in the value of payment card transactions to 2014 48
Datamonitor’s forecasting model assesses the relationship between macroeconomic factors and consumer credit products 51
The credit card market is likely to remain flat through to 2014 53
Datamonitor forecasts annual growth in the credit card market of 3.6% to 2014 under a neutral scenario 53
Under an optimistic scenario Datamonitor forecasts an annual growth of 4.6% 56
Under a pessimistic view of future economic performance, Datamonitor forecasts an annul growth of 2.4% 58
Debit cards will see the most positive levels of growth over the next five years 62
Datamonitor forecasts annual growth of 6.3% in the debit card market to 2014 62
The charge card market will remain flat through to 2014 64
Datamonitor forecasts that the charge card market will see marginal annual growth of 3.0% to 2014 64
Private label cards will decline through to 2014 66
Datamonitor forecasts that the private label card market will see an annual decline of -4.4% to 2014 66
APPENDIX 68
Definitions 68
Methodology 70
Further reading 71
Ask the analyst 71
Datamonitor consulting 71
Disclaimer 71


TABLE OF FIGURES
Figure 1: Following a CAGR of 8.5% from 2005–09, growth will slow to a CAGR of 5.6% from 2010f–14f 7
Figure 2: Following an improvement throughout most of 2009, consumer confidence is falling 9
Figure 3: Card write-offs continue to rise, despite a deceleration in unemployment growth 10
Figure 4: Card write-offs hit record highs in 2009 and 2010, reaching £2.1 billion 12
Figure 5: An index of write-offs, insolvencies, and unemployment suggests probable growth in write-offs 13
Figure 6: Balances outstanding have been declining compared to the previous year 15
Figure 7: For the longest sustained period since the onset of the downturn, transaction values are higher than the previous year 16
Figure 8: Balances outstanding have seen a sustained decline since January 2009 17
Figure 9: Overdraft balances are in decline as consumers avoid debt based spending 18
Figure 10: Monthly balance transfers are showing long-term decline in value 19
Figure 11: The value of balance transfers has dropped by 51.2% between Q1 2006 and Q2 2010 20
Figure 12: The value of all transactions grew by a CAGR of 7.4% between 2005 and 2009 to reach £624.5 billion 22
Figure 13: Debit cards account for over half of the 156.4 million payment cards in issue 23
Figure 14: The private label card market has declined by 29% since 2005 24
Figure 15: The gap between debit and credit card holdings has grown since 2005 25
Figure 16: Standard cards account for almost 10% more of the market compared to five years ago 26
Figure 17: There were 10.7 billion plastic card transactions in 2009 28
Figure 18: Debit cards accounted for 71.9% of transactions by value in 2009 29
Figure 19: Debit cards are used an average of 107 times per year 30
Figure 20: The average transaction value on pay later cards fell in 2009 31
Figure 21: Charge card turnover fell to £6,873 per card in 2009 32
Figure 22: Card turnover per adult in the population is strongly led by debit at £9,312 in 2009 33
Figure 23: UK purchases continue to constitute the bulk of all UK card transactions 34
Figure 24: Debit card transaction values grew by a CAGR of 11.8% between 2005 and 2009 35
Figure 25: The credit market remains flat, recording a CAGR of -1.3% from 2005–09 37
Figure 26: Charge card transactions fell by 8.0% in 2009 38
Figure 27: Visa holds nearly three quarters of the debit card market 39
Figure 28: MasterCard has successfully consolidated its credit card positioning to 60.6% of the market 40
Figure 29: American Express accounts for 51.8% of the charge card market 41
Figure 30: The number of POS terminals continues to rise 43
Figure 31: ATM numbers are falling due to a continued drop in the number of independent machines 44
Figure 32: Card fraud is declining across all card types 45
Figure 33: Instances of fraud are declining in almost every category 46
Figure 34: Following a 38.8% increase, the value of card fraud fell by 27.8% in 2009 47
Figure 35: The UK cards market will see 5.6% growth in transaction values through to 2014 48
Figure 36: The credit card market will improve from at least 2011 onwards 52

TABLE OF TABLES
Table 1: Forecast UK plastic cards market, 2010f–14f 8
Table 2: Forecast of transaction values for the UK plastic cards market (£m), 2010f–14f 49
Table 3: Datamonitor’s neutral scenario forecast of the total UK cards market, 2010f–14f 50
Table 4: Forecast performance of the UK consumer credit market drivers under the neutral scenario, 2010f–14f 53
Table 5: Datamonitor’s five-year forecast of the credit card market under a neutral scenario, 2010f–14f 54
Table 6: Market drivers for the UK credit card market under a neutral scenario, 2005–14f 55
Table 7: Datamonitor’s five-year forecast of the credit card market under an optimistic scenario, 2010f–14f 56
Table 8: Market drivers for the UK credit card market under an optimistic scenario, 2005–14f 57
Table 9: Forecast performance of the UK consumer credit market drivers under an optimistic scenario, 2010f–14f 58
Table 10: Datamonitor’s five-year forecast of the credit card market under a pessimistic scenario, 2010f–14f 59
Table 11: Market drivers for the UK credit card market under a pessimistic scenario, 2005–14f 60
Table 12: Forecast performance of the UK consumer credit market drivers under a pessimistic scenario, 2010f–14f 61
Table 13: Datamonitor's five-year forecast of the debit card market, 2010f–14f 62
Table 14: Market drivers for the UK debit card market under Datamonitor’s forecasting scenario, 2005–14f 63
Table 15: Datamonitor’s five-year forecast of the UK charge card market, 2010f–14f 64
Table 16: Market drivers for the UK charge card market under Datamonitor’s forecasting scenario, 2005–14f 65
Table 17: Datamonitor’s five-year forecast of the UK private label card market, 2010f–14f 66
Table 18: Market drivers for the UK private label card market under Datamonitor’s forecasting scenario, 2005–14f 67


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