FICO UK Credit Card Market Report: July 2024

Rhea-AI Summary

The FICO UK Credit Card Market Report for July 2024 reveals key trends in consumer credit behavior. Spending on credit cards dropped by 2.7% month-on-month and 1.2% year-on-year, to £815. Despite this, the average balance increased by 5.3% compared to 2023, reflecting the ongoing impact of inflation.

Notably, there was an increase in customers missing payments across all cycles, with established customers (1-5 years) showing the highest percentage of missed payments. The report also highlights a 2.3% month-on-month increase in the percentage of balances paid, reaching 37.8%.

Cash usage on credit cards saw a 0.5% increase from the previous month, although it remains 4.8% lower than the previous year. FICO advises issuers to consider pre-collections treatments and review affordability metrics for customers coming off promotional offers to align with Consumer Duty requirements.

Positive

• 2.3% month-on-month increase in the percentage of balances paid, reaching 37.8%
• Average credit limit increased by 0.2% month-on-month and 2.3% year-on-year to £5,715
• Cash sales as a percentage of total sales decreased by 3.5% year-on-year

Negative

• Credit card spending dropped by 2.7% month-on-month and 1.2% year-on-year to £815
• Average card balance increased by 5.3% year-on-year to £1,800
• Accounts with two missed payments increased by 2.3% month-on-month and 5.6% year-on-year
• Accounts with three missed payments increased by 8.3% month-on-month and 6% year-on-year
• Average overlimit spend increased by 4.7% month-on-month to £90

Insights

Financial Analyst

The FICO UK Credit Card Market Report for July 2024 reveals mixed signals for the credit card industry. While the 2.7% month-on-month drop in spending aligns with seasonal patterns, the 5.3% year-on-year increase in average balances indicates persistent inflationary pressures. The rise in missed payments across all cycles is concerning, particularly among established customers.

The 2.3% increase in customers missing two payments is a red flag, suggesting potential financial stress. This trend, coupled with the upward trajectory of average balances for delinquent accounts over the past two years, warrants close monitoring by credit card issuers.

The slight increase in cash usage (0.5% month-on-month) is typical for summer, but the 4.8% year-on-year decrease suggests some improvement in consumer financial health. However, if this trend reverses in September, it could signal increased financial strain.

Overall, while some metrics show stability, the rising delinquencies and higher balances indicate potential risks in the UK credit card market that issuers should proactively address.

Market Research Analyst

The July 2024 data presents a nuanced picture of consumer behavior in the UK credit card market. The 2.3% increase in the percentage of balances paid to 37.8% is a positive sign, indicating some consumers are managing their debts more actively. However, this is offset by the concerning trend of increased missed payments across all cycles.

The disparity between established customers (1-5 years) having the highest percentage of missed payments and the overall market suggests a potential segmentation opportunity for issuers. This group may benefit from targeted financial education and support programs.

The 4.8% year-on-year decrease in cash usage on credit cards is noteworthy, as it could indicate a shift in consumer behavior or improved financial literacy. However, the slight month-on-month increase warrants continued observation.

Issuers should consider refining their risk assessment models and customer segmentation strategies to address the varying needs and behaviors across different customer groups, particularly in light of the upcoming Consumer Duty regulations.

Spending falls following typical seasonal patterns, although average balance is up 5.3% year-on-year and more customers miss payments

LONDON--(BUSINESS WIRE)-- The FICO UK Credit Card Market Report for July 2024 reveals a month-on-month drop in spending, reflecting the same trend seen in 2023. However, risk managers will need to be alert to the increase in customers missing payments, with established customers (those who have had their credit card for 1-5 years) having the highest percentage of missed payments.

Highlights

• Spending on credit cards dropped by 2.7% month-on-month and 1.2% year-on-year, to £815
• July saw a 2.3% month-on-month increase in the percentage of balances paid, to 37.8%
• The number of customers missing payments across one, two and three months increased in July; a 2.3% increase for two missed payments was particularly surprising after the 6.5% drop in June for those missing one payment
• The average balance for consumers missing one payment increased by 0.3% on the previous month and 4.4% in 2023; the average balance for customers missing two payments decreased by 0.3% month-on-month but remains 4.7% higher than the previous year
• In July, 3.46% of customers took out cash on their card, equating to a 0.5% increase in the previous month but an annual drop of 4.8%

FICO Comment

While spend dropped by 2.7% month-on-month in July, to an average of £815, it will be interesting to see how consumers manage their credit commitments and spending in the coming months, potentially influenced by the August interest rate cut, as well as the predicted higher utility bills on their way. The effect of inflation also continues to be evident, with average balances 5.3% higher than 2023.

Of potential concern for risk managers will be the fluctuating pattern of missed payments. With the number of customers missing payments increasing month-on-month across all cycles and steadily trending up over the last two years, issuers should consider pre-collections treatments such as sending out payment reminders, offering more flexible payment options and utilising more customer preferred communication methods, supported by self-service channels.

Established customers (who have held their credit card for between one and five years) have the highest percentage of missed payments. Many customers in this group will have taken out cards during the pandemic, when their affordability may have been inflated due to lack of spending opportunities. They may also have taken on promotional offers such as balance transfers; as these offers expire, they may now be struggling to pay off higher APRs.

In line with Consumer Duty, financial institutions should review affordability metrics for customers coming to the end of promotional offers and move them onto rates more suited to their affordability profile, rather than taking a “one size fits all” approach.

The average balances for customers missing one, two and three payments have been trending up over the last two years. However, the overall average credit card balance has also been increasing and the ratio of delinquent balance to overall balance remains flat, indicating that balances for those customers missing payments is not increasing at a faster rate than for the overall balance.

Cash usage tends to increase over the summer months and this pattern is evident for July with 3.5% of customers taking out cash on their card, equating to a 0.5% increase month-on-month. The monthly increase is, however, smaller than increases seen in the last two years, and July’s usage was 4.8% lower year-on-year. With cash usage on cards a potential indicator of financial stress, it will be important to monitor if the upwards trajectory continues into September, as it has in previous years.

Key Trend Indicators – UK Cards July 2024

Metric	Amount	Month-on-Month Change	Year-on-Year Change
Average UK Credit Card Spend	£815	-2.7%	-1.2%
Average Card Balance	£1,800	0%	+5.3%
Percentage of Payments to Balance	37.77%	+2.3%	-4.5%
Accounts with One Missed Payment	1.55%	+1.7%	-1.5%
Accounts with Two Missed Payments	0.33%	+2.3%	+5.6%
Accounts with Three Missed Payments	0.22%	+8.3%	+6%
Average Credit Limit	£5,715	+0.2%	+2.3%
Average Overlimit Spend	£90	+4.7%	-1.1%
Cash Sales as a % of Total Sales	0.9%	-0.7%	-3.5%
Source: FICO

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 4 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.

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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 July 2024?

The average UK credit card spend in July 2024 was £815, representing a 2.7% decrease month-on-month and a 1.2% decrease year-on-year.

How did the average credit card balance change in July 2024 compared to the previous year?

The average credit card balance in July 2024 was £1,800, which was a 5.3% increase compared to the previous year.

What percentage of customers missed payments on their credit cards in July 2024?

In July 2024, 1.55% of accounts had one missed payment, 0.33% had two missed payments, and 0.22% had three missed payments.

How did cash usage on credit cards change in July 2024?

In July 2024, 3.46% of customers took out cash on their card, a 0.5% increase from the previous month but a 4.8% decrease compared to the previous year.

What was the average credit limit for UK credit cards in July 2024?

The average credit limit for UK credit cards in July 2024 was £5,715, representing a 0.2% increase month-on-month and a 2.3% increase year-on-year.