UK Plastic Cards 2009

UK Plastic Cards 2009 published by Datamonitor in October, 2009. This report consists of 156 pages and the price starts from US $ 4495.

Introduction

Abstract

Introduction

Published annually, UK Plastic Cards provides an overview of the key trends and issues facing the UK card market. Intense competition, rising write-offs, and a deteriorating economic situation have challenged issuers in 2008 and 2009. This report provides in depth coverage of these and other issues, along with full data for the credit, charge, debit, private label, and prepaid card markets.

Scope of this research

• Includes comprehensive data coverage of the UK cards market from 2004 to 2013, including credit, debit, charge, private label and prepaid cards
• Forecast overview including key market drivers and level of influence of these, under a neutral, optimistic, and pessimistic economic scenario
• Analysis of the impact of the recession and its implications for the cards sector, including coverage of consumer card behaviour and attitudes
• Case studies of new product development and strategies being employed globally by key card issuers as a reaction to the downturn

Research and analysis highlights

The UK plastic card market has undergone a turbulent 18 months as a result of both long term difficulties and new challenges posed by the recession. Despite this, the growth in the overall value of transactions across all card types remains positive, reaching £579.5 billion in 2008. This growth was driven primarily by debit card spending.

The economic environment for cards has taken a beating as a result of the downturn with issuers faced with a drop in both transaction values and balances outstanding. These pressures are likely to continue for some time as consumer spending continues to be subdued by an uncertain economy and rising levels of unemployment.

The recession is exacerbating long term trends of a shift from credit toward debit. Under a neutral economic scenario debit cards transaction values will reach £470 billion by 2013, with a CAGR of 2.9%. Credit will grow to reach £119.5 billion over this same period with a CAGR of 1.5%. Debit volumes at the POS alone will grow by a CAGR of 8.3%

Key reasons to purchase this research

• Understand the size and composition of the UK cards market and understand what the future holds under a comprehensive range of economic scenarios
• Comprehend the recession' s impact and how the market is reacting with up to the minute data and the latest analysis of emerging trends
• Plan your strategy effectively with case studies and analysis of how key players are adapting to a rapidly changing dynamic environment

Table of Contents

OVERVIEW

• Catalyst
• Summary
• Methodology

EXECUTIVE SUMMARY

• UK Plastic Card Market in Review and Future Outlook
  • The UK card market grew by a CAGR of 10.0% from 2004 to 2008, but growth will be weaker to 2013
  • Economic indicators give mixed indications for the future of the UK cards market

• Market Statistics and Key Trends
  • The number of credit card holders is falling
  • The total number of cards in issue remains flat, with only debit showing growth
  • Card scheme market shares have been volatile over the past five years

• Forecasting the UK Payment Card Market
  • Despite the recession the UK cards market will continue to grow through to 2013

• Competitor Market Shares and Developments in the UK Plastic Card Market
  • Lloyds Group is now the largest credit card issuer by cards in issue
  • Lloyds Group holds a 21% share of credit card balances outstanding

• Product Innovation in the Downturn: Lessons for UK Issuers
  • Datamonitor has identified six strategies for issuers to maximize their performance in the downturn
  • There are two focus areas for issuers trying to improve the profitability of their business

INTRODUCTION

• UK Plastic Cards 2009 is structured in six chapters

UK PLASTIC CARD MARKET IN REVIEW AND FUTURE OUTLOOK

• Cards grew by a CAGR of 10.0% from 2004 to 2008, but growth will be weaker to 2013
• Economic indicators give mixed indications for the future of the UK cards market
  • Inflation is no longer a worry for the cards market

• Due to the recession consumer behavior with cards is turning negative for issuers
  • Both balances outstanding and transaction values are showing a decline

MARKET STATISTICS AND KEY TRENDS

• UK cards are growing as a share of the total payments market
  • The value of all card transactions is rising

• The total number of cards in issue remains flat, with only debit showing growth
  • The decline in private label cards may be stabilizing
  • The number of credit card holders is falling
  • The variety of cards by type is polarizing into more premium and standard cards

• Despite static card numbers, transactions are growing with over 10.1 billion in 2008
  • Transaction values are growing as a result of the growth of debit
  • Charge cards hold the highest average transaction value and shows signs of continuing growth

• Purchases account for 66.3% of all UK card transactions
  • Debit cards showed the highest rate of growth in transaction value by type between 2004 and 2008
  • Credit transactions are dominated by purchases
  • Charge cards are seeing growth in transaction values, driven primarily by business use

• Card scheme market shares have been volatile over the past five years
  • MasterCard now leads the credit card market
  • The charge card market has seen American Express' historic lead solidified into a dominant position

• The increase in POS terminals have helped drive the growth in transaction volumes
  • The Independent sector continues to drive growth in ATM' s

• The number of fraudulent transactions continues to rise
  • The successful implementation of chip and pin has led to an increase in card-not-present fraud
  • The value of CNP and counterfeit card fraud continues to rise, driving up overall fraud

FORECASTING THE UK PAYMENT CARD MARKET

• Despite the recession the UK cards market will continue to grow through to 2013
  • Datamonitor forecasts annual growth in the value of payment card transactions of 2.4% to 2013
  • Datamonitor' s forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products

• The credit card market is likely to remain flat through to 2013
  • Datamonitor forecasts annual growth in the credit card market of 1.1% to 2013
  • Under an optimistic scenario Datamonitor forecasts an annual growth of 3.1%
  • Under a pessimistic view of future economic performance, Datamonitor forecasts an annul growth of -1.2%

• Debit cards will see the most positive levels of growth over the next five years
  • Datamonitor forecasts annual growth in the debit card market of 2.9% to 2013

• The charge card market will remain flat through to 2013
  • Datamonitor forecasts that the charge card market will see marginal annual growth of 1.1% to 2013

• Private label cards will decline through to 2013, but at a slower rate than in the past
  • Datamonitor forecasts that the private label card market will see an annual decline of -5.7% to 2013

COMPETITOR SHARES AND DEVELOPMENTS IN THE UK CARD MARKET

• Lloyds Group is now the largest credit card issuer by cards in issue
  • Barclaycards remains by far the dominant credit card brand
  • Barclaycard has the largest portfolio of ‘primary' cards
  • The number of standard and premium cards by brand highlights the largest issuers' mass market strategy
  • Usage and primacy rates are driven by card features
  • The number and value of transactions per issuer is broadly in line with market share
  • Usage rates are low for most cards despite high rates of primacy

• Lloyds Group has the highest value of balances outstanding
  • Not surprisingly, Citigroup and MBNA continue to have the highest balance per card on average
  • Repayment rates are significantly higher for cards providing incentives for transacting

• The debit card market is led by the major high street retail banks
  • Barclays' leads the market, with 9.9 million debit cards in issue
  • Debit is growing strongly in day to day use

• Santander now leads the private label card market
  • Private label usage rates are likely to drop as a result of the recession

• Prepaid cards have strong growth potential, but are likely to remain niche
• Barclaycard, Tesco Personal Finance and Santander have performed strongly in 2009
  • Barclaycard is pushing forward in creating incentives for card usage
  • Tesco Personal Finance is poised for strong growth as it moves to become a bank
  • Santander will expand in the cards market, to the detriment of MBNA

• Card issuers must choose between diversifying and refocusing on core strengths

PRODUCT INNOVATION IN THE DOWNTURN: LESSONS FOR UK ISSUERS

• Datamonitor has identified six strategies for issuers to maximize their performance in the downturn
  • There are two focus areas for issuers trying to improve the profitability of their business
  • The Datamonitor Financial Services Megatrends Framework is an excellent tool for identifying potential strategies

• Reducing cost through rationalizing out unprofitable customers is delicate but nevertheless important
  • American Express offered to pay customers to leave in order to close a number of unwanted accounts

• Winning back existing customers can be achieved by linking benefits to a full suite of banking services
  • Citibank offers an extensive reward program that offers benefits across a range of banking products
  • Offering a strong card-based reward program is also an option here, and issuers should look at the Banesto Diez en Una card

• Targeting new customers with good credit histories will require an outstanding offering and one with strong rewards
  • Bank of America' s Accelerated Cash Rewards card offers cashback at 1.25%
  • Explicitly offering more attractive terms to better credit risks is a strategy employed by Capital One in the US

• Cards with an installment option present opportunities in dealing with potential risks
  • Cardholders who may fall into difficulties should be encouraged to structure their balances
  • Offering installment repayment options may also allow issuers to reduce their risk exposure

• Creating incentives for repaying borrowing can help issuers to manage potential credit risks
  • ANZ Bank has launched a product that rewards cardholders for repaying balances
  • Discover has a similar proposition that rewards payments made on time
  • Discover is also proactively communicating with its customers to set structured repayment plans for balances and to allow for accurate spend monitoring

• Winning back transactions from debit is a key strategy and can be achieved by linking rewards to other financial products
  • Fidelity offers a credit card linked to a full suite of savings reward programs for all walks of life

APPENDIX

• The financial services Megatrends Framework
  • Datamonitor has identified 10 Megatrends in consumer behavior
  • Megatrends are tools for capturing the drivers of consumer behavior
  • A Megatrends Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors
  • A trend framework is used for generating and selecting ideas
  • A Megatrends Framework is vital for financial services
  • Customer retention as well as customer acquisition must be considered
  • There are inherent obstacles in financial services that limit innovation in customer targeting
  • Greater customer understanding can help overcome the obstacles found with targeting and communicating to customers
  • The six behavior trends identify the benefits that consumers wish to gain from a product or service
  • The four complexities are areas within which traditional assumptions or measures of behavior no longer apply

• Definitions
  • (Untitled sub-section)
  • Debit card (pay now)

• Methodology
  • (Untitled sub-section)

• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Forecast UK plastic cards market 2009 - 13
• Table: Datamonitor' s forecast of transaction values for the UK plastic card market, 2009 - 13
• Table: Datamonitor' s neutral scenario forecast of the total UK card market 2009 - 13
• Table: Forecast performance of the UK consumer credit market drivers under the neutral scenario, 2009 - 13
• Table: Datamonitor' s five year forecast of the credit card market under a neutral scenario, 2009 - 13
• Table: Market drivers for the UK credit card market under Datamonitor' s forecast scenario, 2004 - 13
• Table: Datamonitor' s five year forecast of the credit card market under an Optimistic scenario, 2009 - 13
• Table: Market drivers for the UK credit card market under an optimistic scenario, 2004 - 13
• Table: Forecast performance of the UK consumer credit market drivers under an optimistic scenario 2009 - 13
• Table: Datamonitor' s five year forecast of the credit card market under a pessimistic scenario, 2009 - 13
• Table: Market drivers for the UK credit card market under a pessimistic scenario, 2004 - 13
• Table: Forecast performance of the UK consumer credit market drivers under a pessimistic scenario 2009 - 13
• Table: Datamonitor' s five year forecast of the debit card market, 2009 - 13
• Table: Market drivers for the UK debit card market under a neutral scenario, 2004 - 13
• Table: Datamonitor' s five year forecast of the UK charge card market, 2009 - 13
• Table: Market drivers for the UK charge card market under Datamonitor' s forecasting scenario 2004 - 13
• Table: Datamonitor' s five year forecast of the UK private label market, 2009 - 13
• Table: Market drivers for the UK private label card market under Datamonitor' s forecasting scenario 2004 - 13
• Table: Consumer perceptions of the features on their credit card by brand
• Table: UK prepaid cards by number of cards in issue by brand and issuing group
• Table: Prepaid transaction by type, frequency, value and average balance per card per year
• Table: Capital One' s classification of credit ratings in the US, 2009
• Table: Current relevant publications, 2008 - 09
• Table: Future relevant publications, 2009

FIGURES

• Figure: The value of transactions across UK cards grew by a CAGR of 9.9% between 2004 and 2008
• Figure: The gap between debit and credit card holdings has grown since 2005
• Figure: The total number of cards in the market has grown due to the growth of debit
• Figure: Visa has successfully grown its debit card market share to nearly two thirds of the sector
• Figure: MasterCard has successfully grown its credit card positioning to 58.1% of the market
• Figure: The total UK card market will see growth in transaction values through to 2013
• Figure: Following the merger with HBOS, Lloyds now dominates the market
• Figure: Lloyds holds 21% of the market by balances outstanding but is closely followed by MBNA at 20%
• Figure: Issuer strategy evolves around two pillars and six potential areas to target
• Figure: Following a CAGR of 10.0% from 2004 - 08, growth will slow to a CAGR of 2.5% from 2009 to 2013
• Figure: While a concern last year, inflation has dropped, while deflation is now a potential risk
• Figure: Despite predictions card write-offs have not risen as sharply as unemployment
• Figure: The index of write-offs, insolvency, and unemployment suggests probable growth in write-offs
• Figure: Although momentarily stabilizing, the value of card write-offs has grown over the past 10 years
• Figure: Both balances and transaction values are declining compared to their position the previous year
• Figure: 2009 transaction value, continue to fall below the previous year following the collapse of Lehman
• Figure: Transaction values have seen a sustained decline since December 2009
• Figure: Despite some seasonal fluctuations, quarterly outstanding balances have remained broadly stable
• Figure: Hard pressed consumers are turning to other forms of credit such as overdrafts
• Figure: Quarter on quarter growth in overdrafts and credit card outstandings show a strong correlation
• Figure: Monthly balance transfers are showing long term decline
• Figure: The value of balance transfers have dropped by 52% between Q1 2006 and Q2 2009
• Figure: Plastic cards have grown to a 6.5% share of the total UK payments market
• Figure: The value of card transaction grew by a CAGR of 9.9% between 2004 to 2008
• Figure: The total number of cards in the market has grown due to the growth of debit
• Figure: The private label card market has declined 33% since 2004, but the rate of decline is slowing
• Figure: The gap between debit and credit card holdings has grown since 2005
• Figure: The share of platinum and co-branded cards has grown while affinity and gold cards has declined
• Figure: There were over 10.1 billion card transactions in 2008, compared to 8.0 billion in 2004
• Figure: The bulk of transaction growth per card is from debit cards which had an AAGR of 4.4% from 2004 - 08
• Figure: The total value of all transaction had a CAGR of 9.9% between 2004 and 2008
• Figure: Charge cards hold the highest average transaction value at £117.86 in 2008
• Figure: Charge cards also hold by far the highest turnover per card at £7,505 in 2008
• Figure: Debit card turnover per adult in the population is strongly led by debit at £8,661 in 2008
• Figure: UK purchases continue to constitute the bulk of all UK card transactions
• Figure: Debit card transaction values had a CAGR of 13.1% between 2004 and 2008
• Figure: The credit market remains flat, and has had a CAGR of only 1.0% from 2004 - 08
• Figure: Charge cards have seen the highest growth by transaction values with a CAGR of 13.9%
• Figure: Visa has successfully grown its debit card market share to nearly two thirds of the sector
• Figure: MasterCard has successfully grown its credit card positioning to 58.1% of the market
• Figure: The charge card market remains dominated by American Express with a 50.9% share
• Figure: The number of POS terminals continues to rise, growing by nearly a fifth since 2004
• Figure: ATM numbers are also rising, yet 2008 saw a slight drop in the number of independent machines
• Figure: Despite the introduction of EMV in 2006, instances of card fraud continue to grow
• Figure: Card not present fraud and counterfeit cards are the only forms of fraud seeing growth
• Figure: Following from a 15.4% decline, the value of card fraud has grown 42.8% between 2006 and 2008
• Figure: The total UK card market will see growth in transaction values through to 2013
• Figure: Following the merger with HBOS, Lloyds now dominates the market
• Figure: The newly formed Lloyds Group is now the UK market leader with 22.3% of cards in issue in H1 09
• Figure: Barclaycard is the largest player by brand ahead of both Lloyds TSB, and HBOS
• Figure: Barclaycard by far has the highest number of primary cards in the market
• Figure: Tesco and John Lewis/Waitrose are the primary card for more than 75% of their customers
• Figure: 40% of Barclaycard' s cards in issue are premium branded
• Figure: There were 278 million transactions made on Barclaycard branded credit cards in 2008, ahead of NatWest and Lloyds TSB branded products
• Figure: Transaction values follow a very similar pattern to transaction numbers, with Barclaycard and NatWest leading the market in 2008
• Figure: Regardless of total transaction values, average spend per transaction is highly variable
• Figure: Tesco and American Express have the highest proportion of cards that are used all the time
• Figure: Lloyds Group now has the highest level of balances outstanding, followed closely by MBNA
• Figure: Lloyds holds 21% of the market by balances outstanding but is closely followed by MBNA at 20%
• Figure: Citigroup has the highest average balance per card, growing 30% since June 2007
• Figure: Repayment rates are higher for cards with rewards and incentives, with cardholder most likely to revolve on Virgin Money and MINT cards
• Figure: The number of debit cards in issue has increased in H1 2009
• Figure: The debit card market is evenly divided between the dominant big leading banks
• Figure: POS makes up more than 70% of all debit transactions by volume
• Figure: POS accounts for 60% of all debit transactions by value
• Figure: Average spend levels are highly variable by issuer
• Figure: Santander is by far, the dominant issuing group of private label cards as at H1 2009
• Figure: Debenhams is the leading brand for private label store cards
• Figure: The private label sector is fragmented, with Debenhams leading with a 17% market share
• Figure: The overall number of cancelled private label cards in the UK market is high
• Figure: With the highest brand awareness, Virgin and PayPal lead the prepaid cards market
• Figure: The prepaid cards sector is dominated by four issuers accounting for 75% of the market
• Figure: POS dominates prepaid card usage, with £5.5 billion of POS transactions in 2008
• Figure: Barclaycard used viral marketing techniques as part of its campaign
• Figure: MyBarclaycard will offer users in-depth online card management services
• Figure: Barclaycard is strengthening its branding with younger consumers through strategic sponsorship
• Figure: The Santander rebranding of Abbey has begun in London
• Figure: Issuer strategy evolves around two pillars and six potential areas to target
• Figure: Citi' s ThankYou Network reward program is linked to credit cards and other retail banking products, 2009
• Figure: Citi' s website for its ThankYou Network reward program offers a range of redemption options
• Figure: The Banesto Tarjeta Diez en Una product offers a permanent 5% discount at 10 major retailers
• Figure: Bank of America Accelerated Cash Rewards offers 1.25% on all purchases, 2009
• Figure: Capital One Card Lab portal, 2009
• Figure: BMO offers reduced interest loan consolidation offer for loans and credit card balances, 2009
• Figure: Swedbank offers three distinctive card products including installment, revolving and charge cards, 2009
• Figure: ANZ Balance Visa offers reward points for paying back cardholder' s balance, 2009
• Figure: Discover Motiva card designed to reward customers for paying back on time, 2009
• Figure: Discover' s Paydown Planner tool helps cardholders to pay back the money owned, 2009
• Figure: The Spend Analyzer is easy to use and useful tool for cardholders managing their finances, 2009
• Figure: Fidelity credit card range is linked to innovative savings reward programs, 2009

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