FICO UK Credit Card Market Report: January 2024

Rhea-AI Summary

The FICO UK Credit Card Market Report for January 2024 reveals that consumer spending dropped by 8.6% post-Christmas, with an average spend of £775. Payments to balance increased by 2.7%, leading to a 0.7% drop in average card balances. The percentage of accounts using the cash limit decreased for the fourth consecutive month. While missed payments decreased for one payment, they increased for two and three payments in January.

Insights

Financial Analyst

Observing the seasonal fluctuation in consumer spending and payment patterns is essential for assessing the health of the retail sector and the economy at large. The reported 8.6% drop in spending post-Christmas is consistent with historical trends, indicating a retraction in consumer activity after the holiday season. This retraction is a natural consumer response and is typically factored into financial forecasts. However, the 2.7% increase in payments to balance is a positive signal for credit card companies, suggesting that consumers are prioritizing debt repayment despite the continued high cost of living.

From a macroeconomic perspective, the year-on-year increase in spend of 2.4% juxtaposed against a 7.1% increase in average card balances suggests that inflationary pressures may still be at play, affecting consumer purchasing power. This dynamic could influence central bank policy decisions on interest rates, which have a direct impact on credit costs and consumer spending power. The increased missed payments on credit cards indicate potential financial stress among certain consumer segments, which could lead to higher default rates and impact the financial health of lenders.

For investors, these trends may suggest a cautious approach to the retail and credit sectors, as they reflect both a predictable seasonal pattern and underlying economic pressures. The ability of consumers to manage debt effectively in the face of inflation will be a key indicator to watch in the coming months.

Consumer Behavior Analyst

The reported data sheds light on the consumer credit behavior which is important for businesses to understand their customers' spending habits and financial resilience. The decrease in the use of cash limits for four consecutive months suggests a shift in consumer preference or financial strategy, potentially indicating a move away from high-cost credit options in favor of more sustainable spending practices. This trend could have implications for businesses that rely on cash transactions or cash advance fees.

Moreover, the variation in missed payments provides insight into the financial stress points for consumers. An increase in the number of cardholders missing two and three payments could signal a segment of the population that is over-leveraged or experiencing financial hardship. This has implications for customer segmentation and risk management strategies for lenders.

Businesses that offer consumer credit or operate in the retail sector should monitor these behavioral trends closely to adjust their credit risk models and marketing strategies accordingly. Tailoring financial products to meet the needs of consumers who are more conscientious about their credit usage could be a strategic move in this economic climate.

Risk Management Expert

The FICO report's insights into credit card payment behaviors are a valuable input for risk management within financial institutions. The uptick in payments to balance is a positive sign of consumer's willingness to reduce debt, which could improve the overall credit quality of lenders' portfolios. However, the increase in the number of cardholders missing multiple payments is a red flag. It suggests a growing risk segment that could lead to higher charge-offs and provisioning for bad debt, affecting lenders' profitability.

Financial institutions should take note of the increased average balance on accounts with missed payments, as this could indicate a rise in potential losses. The data points to the need for enhanced credit monitoring and targeted intervention strategies to support consumers at risk of default. Lenders may need to refine their predictive analytics models to better identify early signs of financial distress and proactively offer restructuring options or financial counseling.

It is also pertinent to consider the long-term implications of these trends. If the high cost of living persists and consumers continue to struggle with debt management, we could see a tightening of credit standards and a shift in lending practices. This could have a broader impact on consumer spending and the economy, potentially leading to a contraction in credit availability and a slowdown in economic growth.

Consumer spending and payments followed typical seasonal patterns for the start of the new year

LONDON--(BUSINESS WIRE)-- According to the FICO UK Credit Card Market Report for January 2024, consumer credit behaviour followed typical start-of-year patterns. Spending fell by 8.6% post-Christmas, while consumers increased their payments to balance by 2.7%. Credit card providers will, however, be encouraged by the first increase in payments to balance since July 2023.

Average UK credit card spend dropped by 8.6% month-on-month in January 2024, equating to an average spend of £775, according to new figures from FICO. (Graphic: FICO)

Highlights

• Average card spend dropped by 8.6% month-on-month, equating to an average spend of £775
• Reflecting continued high prices, year-on-year spend in January was 2.4% higher than 2023
• Increased payments to balance led to a 0.7% drop in average card balances, which now stands at £1,770
• Fewer cardholders missed one card payment in January compared to December
• There was an increase in the number of cardholders who missed two and three payments in January - 12.6% and 1.4% - respectively
• The percentage of accounts using the cash limit decreased for the fourth month in a row after peaking in September

Key Trend Indicators – UK Cards January 2024

Metric	Amount	Month-on-Month Change	Year-on-Year Change
Average UK Credit Card Spend	£775	-8.6%	+2.4%
Average Card Balance	£1,770	-0.7%	+7.1%
Percentage of Payments to Balance	37.6%	+2.7%	-4.6%
Accounts with One Missed Payment	1.7%	-1.2%	-0.1%
Accounts with Two Missed Payments	0.4%	+12.6%	+1%
Accounts with Three Missed Payments	0.2%	+1.4%	+4.7%
Average Credit Limit	£5,635	+0.3%	+1.1%
Average Overlimit Spend	£85	-2.3%	-5.5%
Percentage of Customers using Credit Cards to Take Out Cash	3.3%	-3.6%	+6.2%

Source: FICO

FICO Comment

After increased activity in the lead-up to Christmas, there is usually a drop in spending at the start of the new year; 2024 has followed this trend. What credit card providers will now be looking at is how well card users will manage the increased debt incurred over the festive season and the FICO data suggests that consumers focused on paying off credit card balances in January.

Alongside an 8.6% drop in spending, there was a 2.7% increase in payments to balance compared to December, with 37.62% of balances being paid in the first month of the new year. This is the first increase in payments to balance since July 2023.

Historical FICO data shows that the percentage of payments to balance usually drops in February; it will therefore be interesting to see whether payments continue to trend back down to pre-COVID levels of around 30% in the coming months.

When it comes to missed payments, the percentage of customers missing one card payment was 1.2% lower month-on-month in January. However, this followed the significant 14.8% increase in December. Combined with seasonal spending, this meant that customers missing two payments rose significantly in January: 12.6% month-on-month. Customers missing three payments also rose, with a 1.4% month-on-month increase and 4.7% year-on-year.

The average balance on accounts with missed payments is another important trend lenders will want to track over the coming months and one which currently appears to be influenced by the continued high cost of living. The average balance of customers missing one payment increased by 2.9% month-on-month in January, to £2,235. This is 9.3% higher than the same period the previous year. The average balance of two missed payments in January was 1% lower month-on-month, but 8.4% higher than in 2023. And while there was a 0.3% drop in the average balance for customers missing three payments, there was an 8% increase year-on-year.

The other spending pattern lenders will want to monitor closely over the coming months is the percentage of customers using the cash limit on their cards. This decreased for the fourth month in a row after peaking in September.

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% of UK card issuers. For more information on these trends, contact FICO.

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, insurance, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 2.6 billion payment cards from fraud, to improving financial inclusion, to increasing supply chain resiliency. The FICO® Score, used by 90% of top US lenders, is the standard measure of consumer credit risk in the US and other countries, improving risk management, credit access and transparency. Learn more at 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/20240325386987/en/

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

FICO UK PR Team

Wendy Harrison/Parm Heer

ficoteam@harrisonsadler.com

0208 977 9132

Source: FICO

FAQ

What was the average UK credit card spend in January 2024 according to the FICO UK Credit Card Market Report?

The average UK credit card spend in January 2024 was £775, reflecting an 8.6% decrease post-Christmas.

How much did payments to balance increase by in January 2024 based on the FICO report?

Payments to balance increased by 2.7% in January 2024, leading to a 0.7% drop in average card balances.

What was the percentage change in accounts with two missed payments in January according to the FICO report?

Accounts with two missed payments increased by 12.6% in January according to the FICO report.

How did the average balance of customers missing one payment change in January 2024 based on the FICO data?

The average balance of customers missing one payment increased by 2.9% month-on-month in January 2024, reaching £2,235.

What trend did the percentage of customers using the cash limit on their cards follow in January 2024 according to the FICO report?

The percentage of customers using the cash limit on their cards decreased for the fourth consecutive month in January 2024, after peaking in September.