Credit and Debit Cards - UK - September 2007

TABLE OF CONTENTS

• Issues in the MarketMain issues
• Abbreviations
• Market in Brief
• Card transactions worth £320 billionCredit card growth stalled
• Debit cards on the rise
• The fight against fraud is a war of attrition
• Marketing expenditure squeezed
• Consumer research confirms wider market trends...
• ...with younger people swapping cards for cash
• The affluent making greatest use of their cards
• Internal Market Environment
• Key Points
• Regulation cuts profits
• The cheque is dead
• Fraud not yet under control
  • Figure 1: Summary of plastic card fraud losses, 2001-06
• Credit squeezed
  • Figure 2: Consumer debt levels, 2001-06
• Bad debt on the up
  • Figure 3: Consumer debt write-offs, 2001-06
• External Market Environment
• Key Points
• Interest rates -- hurting
  • Figure 4: Bank of England base rate, RPI and real rate of interest, 1990-2007
• Consumers getting keener on saving
  • Figure 5: Total PDI, consumer expenditure and savings, 2003-12
• The economy -- tougher conditions
  • Figure 6: GDP annual growth and proportion of workforce unemployed -- UK, 1997-2007
• Consumers are getting cautious
  • Figure 7: Agreement with selected financial lifestyle statements, 1993-2006
• Online spending -- 40% of adults now shop online...
• ...but new fraud opportunities open up...
• ...and new challengers enter the market
• Competitive Context
• Key Points
• Overdrafts: cheaper and more accessible
  • Figure 8: Value of overdraft advances (MBBG only), 1998-2006
• Personal loans -- further signs of belt-tightening?
  • Figure 9: Gross lending on unsecured and secured personal loans, 2000-06
• Mortgage equity withdrawal popular
  • Figure 10: Gross mortgage lending, by type of advance, 1997-2006
• Store cards dying out
  • Figure 11: Store cards, number of cards in issue and number of transactions, 2001-06
• Strengths and Weaknesses in the Market
• Debit cards
• Strengths
• Weaknesses
• Credit cards
• Strengths
• Weaknesses
• Market Size and Forecast
• Key Points
• Number of payment cards in issue flattens
  • Figure 12: Number of payment cards in issue, by type, 2001-06
• Transaction volumes remain level...
  • Figure 13: Volume of UK purchases, by card type, 2001-06
• ...while values edge up slightly
  • Figure 14: Value of UK purchases, by card type, 2001-06
• Average purchase value -- room at the bottom
  • Figure 15: Average purchase value, by card type, 2001-06
• Transaction frequency -- too much, too rarely?
  • Figure 16: Card usage frequency, by card type, 2001-06
• Forecast
• Debit card purchases to continue to grow...
  • Figure 17: Forecast of debit cards: number in issue, total value and volume of purchases, 2002-12
• ...extending the gap between debit and credit cards
  • Figure 18: Forecast of credit cards: number in issue, total annual transaction volumes and value, 2002-12
• Factors used in the forecast
• Segment Performance
• Key Points
• Debit cards
• Steady growth in card numbers...
  • Figure 19: Debit cards in issue by scheme, 2001-06
• ...while transaction numbers approach the seven million mark
  • Figure 20: Debit card transaction volumes by scheme, 2001-06
• Visa Debit continues to lead the market
  • Figure 21: Debit card scheme market share, by transaction volume, 2001-06
• Transaction values top £361 billionFigure 22: Debit card transaction values by scheme, 2001-06
• Electron and Solo transactions reflect target market
  • Figure 23: Debit card average transaction value by scheme, 2001-06
• Average cash withdrawals on the up
  • Figure 24: Debit card cash acquisition value by scheme, 2001-06
• Credit cards
• MasterCard shows strongest growth...
  • Figure 25: Credit and charge cards in issue by scheme, 2001-06
• ...although Visa still accounts for more transactions
  • Figure 26: Credit and charge card transaction volumes by scheme, 2001-06
• Purchase volumes approaching two billion
  • Figure 27: Credit and charge card purchase volumes by scheme, 2001-06
• Value fails to keep pace with inflation
  • Figure 28: Credit and charge card purchase values by scheme, 2001-06
• Cash acquisition falls back in 2006...
  • Figure 29: Credit and charge card cash acquisition volumes by scheme, 2001-06
• ...in terms of value, as well as volume
  • Figure 30: Credit and charge card cash acquisition by value, 2001-06
  • Figure 31: Credit and charge card average cash acquisition transaction value by scheme, 2001-06
• Turnover per card
  • Figure 32: Credit and charge card turnover per card, by scheme, 2001-06
• Spending Behaviour
• Key Points
• Spending by sector
  • Figure 33: Analysis of debit and credit card purchases, by sector, 2006
• Leisure drives purchasing growth
  • Figure 34: Credit and debit card spending, combined growth by sector, 2001-06
• Overseas transactions reflect travel habits
  • Figure 35: Summary of credit and debit card transactions outside the UK, annual transaction value and volume, 2006
• Market Share
• Key Points
• The big five still account for the vast majority of the debit card market
  • Figure 36: Volume share of current account market, 2003-07
• Barclays and Lloyds TSB still lead the pack
  • Figure 37: Provider share, by brand, April 2007
• Market dynamics by provider
  • Figure 38: Provider share, by type of lender, 2004-07
• Companies and Products
• Key Points
• Balance transfer cards still a key weapon...
• ...but the offer has changed
• Reward schemes repositioned
• Company Profiles
• Lloyds TSB
• RBS Group
• Barclays
• HSBC
• HBOS
• MBNA
• Capital One
• Brand Communication and Promotion
• Key Points
• Credit cards account for the bulk of adspend
  • Figure 39: Plastic card advertising expenditure, by type of card, years to April 2006 and April 2007
• Debit card adspend
  • Figure 40: Debit card adspend, by outlet, year to April 2007
  • Figure 41: Debit card adspend, by provider, years to April 2006 and April 2007
• Credit card adspend dominated by direct mail
  • Figure 42: Credit card adspend, by outlet, year to April 2007
• Capital One top spenders in the credit card market
  • Figure 43: Credit card adspend, by provider, years to April 2006 and April 2007
• A shift in marketing focus
• Card Ownership and Brand Shares
• Key points
• Credit ownership -- cards lead the way
  • Figure 55: Ownership of selected credit products, April 2007
• The rise of the debit card
  • Figure 56: Debit, credit and charge card ownership, 2000-07
• Under 25s shunning credit cards?
  • Figure 57: Debit, credit and charge card ownership, by gender and age, April 2007
• Most affluent most likely to have a credit card
  • Figure 58: Debit, credit and charge card ownership, by affluence and lifestage, April 2007
• Established players under increasing pressure
  • Figure 59: Provider share, by brand, 2004-07
• The big five continue to dominate...
  • Figure 60: Provider share, by type of lender, 2004-07
• ...particularly among younger cardholders
  • Figure 61: Credit card brand share, by gender and age, April 2007
• Women and families turn to retailers
• ABs defect to the US operators
  • Figure 62: Credit card brand share, by socio-demographic group, April 2007
• Internet users and young people also more likely to venture away from traditional providers
• Card Ownership and Brand Shares -- Detailed Demographics
• Card ownership
  • Figure 63: Card ownership, by socio-demographic group, April 2007
• Brand share
  • Figure 64: Credit card brand share, by socio-demographic group, April 2007
• Card Usage
• Key points
• Debit card usage -- replacing cash, or supplementing it?
  • Figure 65: Attitudes towards cash and debit cards, April 2007
• Debit card usage skewed towards younger consumers and high earners
  • Figure 66: Most popular attitudes towards cash and debit cards, by gender, age, socio-economic group and lifestage, April 2007
• Ladies get their cashback
• Cards replacing cash for younger consumers?
  • Figure 67: Next most popular attitudes towards cash and debit cards, by gender, age, socio-economic group and lifestage, April 2007
• Consumers reining back credit card borrowing
  • Figure 68: Plastic card usage, by socio-demographic group, April 2007
• Responsible credit card usage
• Online usage -- under threat from a reduced appetite for debt?
• Providing Incentives
• The young and the cardless
  • Figure 69: Most popular attitudes towards plastic card usage, by socio-demographic group, April 2007
• Savvy, affluent, and online
• Men and affluent the most frequent users
  • Figure 70: Next most popular attitudes towards plastic card usage, by socio-demographic group, April 2007
• The potential for building reward schemes
• Card Usage -- Detailed Demographics
  • Figure 71: Most popular attitudes towards cash and debit cards, by socio-demographic group, April 2007
  • Figure 72: Next most popular attitudes towards cash and debit cards, by socio-demographic group, April 2007
  • Figure 73: Most popular attitudes towards plastic card usage, by socio-demographic group, April 2007
  • Figure 74: Next most popular attitudes towards plastic card usage, by socio-demographic group, April 2007