Britons charge £118.3b less from 2008 peak


Credit card spending will rebound in 2011As Britons continue to keep a tight rein on their spending in the current economic climate, the credit card market remains in state of flux. As a result, a new study has suggested that consumers will make fewer credit card purchases this year.

Decline in 2010 but growth in 2011
Datamonitor has published research forecasting that the UK credit card industry will decline by 2.7% in 2010, which is the equivalent of £3.1bn. However, the independent analyst also noted that this trend should be reversed in 2011, although activity is likely to remain well below the peak for credit card transactions, which was recorded at £121.4bn in 2008.

The research found that the number of credit cards in issue declined by 10% (or 6m) on a year-on-year basis in 2009, largely due to providers attempting to reduce the number of dormant accounts in the country. Gilles Ubaghs, a financial services analyst at Datamonitor, explained that credit card companies are attempting to reduce their "exposure to risk," particularly when some consumers are becoming increasingly reliant on credit to see them through this tough financial period.

Lenders cope with falling transactions
Datamonitor's study revealed that transaction values were typically between £1bn and £1.5bn lower on an annual basis in most months during 2009. Mr Ubaghs claimed that this trend is "problematic" for card issuers, but pointed out that the decline was not as acute as some analysts were predicting 18 months ago.

"While falling transaction values will impact issuer revenues, falling balances (and hence lower exposure to risk) alongside potentially stabilising levels of write-offs mean that they should be better placed to handle this," he said.

A broader malaise
The Datamonitor overview of the credit card industry suggests that it appeared to suffer in 2009, with outstanding balances also found to be on the decline. However, the research also showed that other forms of credit fared even worse. While year-on-year quarterly growth in the credit card market hit a low of -8.5% in Q1 2009, personal loans and motor finance loans fell by 30.1% and 22.2% respectively during the same period. As a result, it seems that the decline is symptomatic of a general reluctance to secure new credit in the current economic environment

Published: 18 May 2010