FICO Data: UK Credit Card Customers Showing Signs of Financial Stress

Rhea-AI Summary

FICO has conducted a study highlighting concerning trends among UK credit card users in the Established vintage (1-5 years). As of February 2023, this group showed a significant increase in payment delinquencies. Specifically, they are 83% more likely to miss two payments compared to the overall average, with average balances predicted to go unpaid at 69% higher than all card accounts. Additionally, three missed payments are nearly 94% more common in this demographic.

Factors contributing to this trend include higher minimum payments and increased interest rates for these accounts. The 'balance at risk' for these customers has increased by over 60% since February 2022, raising alarms for risk managers, especially ahead of new Consumer Duty regulations set to start in July.

Positive

• None.

Negative

• 83% higher missed payments among Established card holders in February 2023 compared to the average.
• 69% higher average unpaid balance predicted for Established group than all card accounts.
• 94% higher incidence of three missed payments in Established group compared to the overall average.
• 55% higher percentage of payments less than the minimum due for Established accounts in February 2023.
• 19% increase in average interest per active account since July 2020.
• Balance at risk for Established group is more than 60% higher since February 2022.

Worrying trends developing amongst established credit card users as missed payments rise

LONDON--(BUSINESS WIRE)-- New analysis of UK credit card activity from FICO has revealed worrying payment patterns amongst customers who have held their cards for between one and five years, known as the Established vintage. This group is showing increased rates of missed payments and other signs of financial stress. This will particularly be a concern for risk managers, with new Consumer Duty expectations starting in July.

FICO data shows average credit card balances are higher among accounts open one to five years than all card accounts. (Graphic: Business Wire)

Highlights

• Established vintage of UK credit card accounts is 83 percent more likely to have missed two payments in February 2023 than the average of all card accounts
• The average balance value predicted to not be paid by the Established group is 69 percent higher than for all card accounts for February 2023
• The percentage of accounts with three missed payments is nearly 94 percent higher amongst Established card holders than for all card accounts for February 2023

FICO monitors card use and payment performance and has analysed the performance of different groups of card holders as the pressures of the cost of living crisis increase. In particular, FICO has looked at the Established group – accounts that have been open from one to five years.

Tracking the difference month on month over a five-year period, the percentage of customers missing one, two and three payments as well as the balance of these missed payments compared to the overall balance are all increasing significantly, as seen by the percentages below:

• The percentage of Established accounts with one missed payment is 41 percent higher than all account vintages. It was 18 percent higher in 2018.
• The percentage of Established accounts with two missed payments is more than 83 percent higher than all account vintages. It was 53 percent higher five years ago.
• The percentage of Established accounts with three missed payments is nearly 94 percent higher. It was 66 percent higher in February 2018.

Vintage Analysis

In line with the higher late payments, the percentage of payments that are less than the minimum due are also considerably higher for the Established group; in February 2023 the average for Established accounts was 55 percent higher than all accounts.

Another key factor is that as customers miss payments, those on a promotional rate will probably have to pay interest, even if they were on a 0 percent balance transfer. As FICO has seen with the increased delinquency for the Established group, average interest per active account is also higher and currently stands 19 percent higher, having risen steeply since July 2020.

Balance at Risk

FICO’s benchmarking also tracks the “balance at risk” for a customer. This predicts how much of the credit card balance is expected to not get paid. When comparing the Established pool to the overall population during the pandemic, reduced spend opportunities and higher savings lowered the balance at risk. However, since February 2022, this has been increasing in line with the cost-of-living crisis and the average is currently more than 60 percent higher for the Established group. In comparison, the average Established cards balances at risk was 47 percent higher than all vintages in 2018.

All of these trends will be of concern to risk managers. Customers who have taken advantage of promotional offers in the past may now be struggling to transfer these balances elsewhere and are left with higher balances, on a high interest rate with a higher minimum due each month. One of the main themes of the FCA Consumer Duty which comes into force in July is around identifying and supporting vulnerable customers just like these. Proactive treatment and support — such as specific collections treatment, loan consolidation or alternative product offerings with a lower APR attached — are all areas issuers can consider in order to meet the requirements set out in the Consumer Duty.

These card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service. The data sample comes from client reports generated by the FICO^® TRIAD^® Customer Manager solution in use by some 80 percent of UK card issuers.

About FICO

FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in nearly 120 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time.

Learn more at https://www.fico.com

FICO and TRIAD are registered trademarks of Fair Isaac Corporation in the U.S. and other countries.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230419005092/en/

For further comment on the FICO UK Credit Card activity contact:

FICO UK PR Team

Wendy Harrison/Parm Heer/Matthew Enderby

ficoteam@harrisonsadler.com

0208 977 9132

Source: FICO

FAQ

What did FICO's recent analysis reveal about UK credit card users?

FICO's analysis indicated a worrying trend of increasing missed payments among Established UK credit card users, particularly those with accounts open for one to five years.

How much more likely are Established card holders to miss payments?

Established card holders are 83% more likely to have missed two payments in February 2023 compared to the average of all card accounts.

What is the trend regarding balances at risk for Established card users?

The balance at risk for Established card users has increased by more than 60% since February 2022 as the cost-of-living crisis impacts payment behavior.

How does the current payment behavior of Established card holders compare to 2018?

In February 2023, the percentage of Established accounts with missed payments has increased significantly compared to February 2018, indicating growing financial stress.

What new regulations are risk managers concerned about following FICO's findings?

Risk managers are particularly concerned about the new Consumer Duty expectations that will start in July, which mandate identifying and supporting vulnerable customers.