UK credit card borrowing in decline
A recent report from PriceWaterhouseCoopers suggests credit cards are facing a "mid-life crisis" as people used debit cards, digital payments and payday loans instead. The number of credit cards in circulation and total credit card borrowing both fell in 2011, the PwC report said. It suggested that UK consumers were turning to other forms of payment, even though the average credit card balance stood at about £1,000. Debit card use had increased by 10% last year, while many people - especially the younger generations - were happy to use digital payments, such as using their mobile phone.
- The consumer credit market contracted for a third successive year, with unsecured borrowing falling by 4% in 2011. Despite paying off an average of around £355, each household remains saddled with around £7,900 in unsecured debt. We project this will fall to around £7,500 by 2013.
- The number of credit cards in circulation fell by nearly one million, taking us back to levels not seen for almost a decade. At the same time, total credit card borrowing fell by around 5%, leaving the average credit card balance at around £1,000.
- As mainstream lenders continue to retrench, there are increasing numbers of underbanked consumers seeking loans from alternative lenders. This has underpinned significant growth in areas such as payday lending and pawnbroking.
"Credit card providers will need to quickly look at ways to attract consumers by exploring digital technologies and mobile payments if they are to continue to compete in the payments market."
In addition, as consumers turn away from credit cards or are unable to obtain credit from mainstream lenders, we are seeing increasing evidence of consumers seeking alternatives such as so called ‘pay-day loans’. The convenience and innovation offered by alternative lenders are encouraging a broader and more prosperous selection of consumers to choose their services over banks.
"Mainstream lenders need to aware that what may have begun as a last resort, could be an enduring relationship as consumers are pleasantly surprised at the convenient and innovative service they receive from these smaller, more agile providers."
Simon Westcott, director, PwC
Source: Precious Plastic PriceWaterhouseCoopers (2012)
M&A activity continues as new entrants strengthen their presence
Despite an on-going tough economic climate, the banking and financial services sector has remained active. Post-recession EU competition regulations, which are supported by the UK government, have forced some larger organisations to slim down, whether by closing branches or consolidating their assets. While other smaller, new entrants have grown their presence through mergers and acquisitions in an attempt to strengthen their market share – and it’s working. In the past 18 months there has been a significant rise in the number of emerging players on the market.
The battle between the two trends looks set to continue into 2012 as new entrants are expected to increase their prominence and larger organisations are predicted to consolidate their risker assets further and focus on where they are strong. Further consolidation will likely lead to a significant loss of jobs, adding to the UK’s rising unemployment and placing additional financial stress on already stretched consumers. Businesses will have to reconsider their customer management strategies to deliver customer satisfaction, maintain growth and keep costs down, whether that’s accurately assessing high risk customers or retaining profitable ones.
EU proposes stricter rules on data protection
Financial services firms and credit card processors will be obliged to report incidents of lost or stolen data within 24 hours of a breach, according to new EU rules introduced this month. The wide-ranging overhaul of the EU’s data protection rules gives individuals more control over the use of their personal information and imposes tight strictures on companies that hold and process that data. Data protection officers will have to be appointed to preside over the protection of personal data stored and processed by companies across Europe. Individuals must also be informed quickly when their personal data is lost, stolen or hacked.
The data protection overhaul comes at the same time as the European Commission (EC) has proposed huge reforms to the way data is used and stored on individuals and businesses. At the heart of the reforms proposals make it easier for consumers to access their data and have the ‘right to be forgotten’ which would allow consumers to delete online data if there are no legitimate grounds to retain it. The radical updates to the 1995 EU data protection rules are designed to strengthen online privacy rights and boost Europe’s digital economy. Proposals will now be passed on to EP and EU member states, and could take up to two years. As a result, organisations will have to invest time and money assessing their internal processes and preparing for impending changes.
Finextra.com, 24th January 2012
Credit Today, 25th January 2012
Insolvency share increases for middle class suburbanites 2011
New analysis has revealed that although personal insolvencies across the UK are decreasing overall – down 11.3% in 2011 compared with 2010 – some demographics and regions continue to struggle. Experian’s analysis shows that mostly married or middle aged people, bringing up children in family houses, saw the biggest increase in their share of UK insolvencies in 2011, rising by a total of 56 basis points and accounting for 10.93% of UK personal insolvencies in 2011. In comparison, professional and well educated people experienced the biggest decrease in insolvencies, from 6.14% of insolvencies in 2010 to just 5.40% in 2011.
Redundancy and relationship breakdown are typically the main reasons why people experience serious financial difficulties. Lenders that use data and analytics to better understand the specific circumstances of their individual customers are best placed to assess risk and to manage their customer relationships accordingly.
Experian, February 2012
Should the cost of short-term lending be capped?
– today’s industry experts discuss
The Department for Business, Innovation and Skills (BIS) is considering imposing a limit on the price of high cost credit. The potential move follows concerns that the most vulnerable consumers are paying a high price to access some credit products. To evaluate the impact of a rate cap, BIS has commissioned independent research to look into how other countries regulate their markets and whether a cap would reduce access to credit for come consumers. Stella Creasy MP at Walthamstow agrees that the government should introduce caps on the total cost of credit, but believes that the British economy cannot afford to wait another year for the research to be completed. However not everyone is in favour of rate caps.
John Lamidey, Chief Executive at Consumer Finance Association, warns that rate caps would remove access to credit facilities for some consumers, opening the door to unregulated or illegal providers. Ian Porter, Sales and Marketing Manager at Ferratum UK agrees, believing that implementing stringent credit policies and working with customers are more effective strategies to help customers repay their loans without restricting them.
Credit Today – January 2012
Common sense standards apply to mortgage lending
The FSA has announced plans to underpin future mortgage lending decisions with a set of principles. The aim is to prevent a return of the risky mortgage lending seen before the recession, which resulted in some borrowers taking on greater mortgages than they could afford on the assumption that house prices would always rise. Instead, mortgage lending should now be based on the reasonable expectation of repayment without relying on uncertain future house price rises. This also extends to interest-only mortgages, which the FSA warns, should only be advanced if there is a believable strategy for repayment that is independent of house prices. Future mortgage lending decisions should also allow for the possibility that interest rates might rise and take into account a consumer’s future affordability.
The FSA is now encouraging consumers, industry and all other interested parties to give their opinions on this new, full, set of proposals. Following consultation, the FSA Board will make a decision on the final form of rules in summer 2012, but implementation will not be before 2013.
FSA – December 2011
House repossessions are predicted to rise in 2012
The Council of Mortgage Lenders (CML) has predicted that house repossessions and mortgage arrears rates will rise by 21% this year, despite improving the previous two years. The prediction comes as consumers and businesses continue to feel the pinch which could see 45,000 repossessions in 2012 compared to 37,000 last year. CML states that this figure is still fewer than repossession figures for 2009 and in the 1990s downturn.
Mortgage lending forecasts by CML are also lower, with expected gross lending in 2012 predicted as £133 billion and net lending of £5 billion, compared to gross lending of £138 billion and net lending of £9 billion in 2011.
However, CML is also keen to stress that in today’s uncertain climate, these predictions are subject to variation in either direction.
CML forecasts for 2012 – December 2011