The U.K. credit card market at a glance

While not as large as the U.S. both in number of people and number of credit card owners, the U.K. remains a very lucrative market for issuing banks and card networks, as well as a host of alternative financial service providers catering to younger, underserved consumers.

In 2017 there were just over 32.3 million adult credit card owners possessing a total of roughly 60 million cards or about two different cards per owner, according to the UK Cards Association (now rebranded UK Finance). Given that the Office for National Statistics reported that there were approximately 52.4 million adults 18 and over in the country in 2018, this gives the U.K. a credit card penetration rate of about 62%,

In comparison, according to the U.S. Federal Reserve about 80% of U.S. adults have at least one credit card.

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According to data from the Bank of England, average credit card rates in the U.K. have consistently remained significantly above U.S. rates when compared to data from the U.S. Federal Reserve. The rates in both countries have been rising over the last two years as credit card debt levels have grown, however, the gap between the two has shrunk most recently. The current average interest rate gap reveals U.K. credit card rates are 4.91% on average higher than U.S. rates, which is down from a gap of 6.48% in February 2014.

Despite the higher average interest rates for existing cardholders, U.K. card issuers utilize the same low introductory rate acquisition strategy of their U.S. counterparts when it comes to obtaining new customers. Data from the U.K. credit card comparison website Money revealed several highly attractive offers that would give U.S. issuers a run for their money – Barclaycard (the U.K.’s largest issuer) is offering a 0% for 25 months balance transfer (2.7% fee) and 0% for 25 months introductory purchase offer. Halifax, another major issuer is offering a 0% for 29 months balance transfer with a 3% fee and a 19.9% variable “go-to” APR.

Even the U.K.’s Post Office is offering highly attractive credit card incentives to consumers with balance transfers of 0% for 18 months with a 2.9% fee and an introductory purchase rate of 0% for 12 months, pending the standard customer credit approval.
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Based on a report from the Financial Conduct Authority (FCA), over half (56%) of all new credit cards are acquired through the online channel (mobile and web), which includes price comparison websites, online marketing, internet search and credit card firms' own websites. Approximately 30% of all new credit cards opened in 2014 (the last year data was available) were opened by credit card comparison websites. While the branch segment continues to hold a strong second place in channel acquisitions, its grip is beginning to weaken, having peaked in 2012.

Channel strategies will differ based on product, type of firm and consumer type. For example, monoline card issuers such as MBNA (Bank of America) and Capital One PLC do not have branches and therefore rely solely on direct mail and online acquisitions; while Lloyds, Halifax and Barclays leverage their branches.

Card comparison websites have proven highly effective in attracting customers seeking to conduct a balance transfer to a new card, due to the enhanced ability to compare multiple competitive card offerings on a single platform. Meanwhile, co-branded cards such as Marks & Spencer and Sainsbury will leverage their in-store and online checkouts to acquire new customers, often offering discounts on purchases.
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Most credit cards in the U.K. are held by older consumers — roughly 70% of credit cards are owned by consumers 40 years and older, according to a report from the Financial Conduct Authority (FCA). Only 2% of credit cards are held by consumers 18-24 years old.

Along the same lines, ownership of credit cards among young adults in the U.S. has also been traditionally low, becoming a similar rarity to that of the U.K. due to a combination of the 2008-2010 financial recession — which scared off many banks from issuing cards to young and low income consumers — as well as the 2009 CARD Act, which prohibited issuing credit cards to consumers under 21 without a guarantor or proof of independent income.

According to the Consumer Financial Protection Bureau, consumers under 21 represented only 5.7% of new credit card originations in 2007. Following the recession and implementation of the CARD Act, consumers under 21 fell to just 3% of all new credit cards in 2012.

By gender, credit card ownership is split fairly even in the U.K., with slightly more men holding credit cards than women at 53% vs. 47%. The majority of the difference appears to be among consumers 55 and older, where the male ownership skew is slightly more pronounced.
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In the quarterly survey among U.K. financial institutions, credit card defaults appear to be rising near record highs not experienced in the prior few years. According to the Bank of England’s Credit Conditions Survey 2019 Q3, which polls banks, building societies, monolines and other credit card issuers, the default rates being experienced are beginning to approach levels last seen during the height of the recession in 2009.

The lenders in the survey reported to the Bank of England that the rise in credit card default rates has outpaced the default rates for other unsecured lending products, such as personal loans. On the positive side of things, the banks did also note that the credit quality of credit card applicants has been on the upswing as of late.

Unfortunately, for many of those new customers, their new credit cards may fall a bit below their expectations, as banks reported that credit card limits issued have fallen in four of the last five trailing quarters.
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Despite Brexit and the potential for a slowing global economy, especially in Europe, looming over the average U.K. consumer, the appetite for credit card debt continues unabated. Perhaps the saving grace is that the rate of increase has started to fall in the last two years.

According to the Bank of England, the year-on-year increase in credit card debt has fallen to 3.9% in November 2019, showing steady declines from the peak in November 2016 in which growth was a hefty 9% year-over-year.

Britons owe roughly £2,700 (about $3,500) on average per U.K. household in unpaid credit card debt, according to The Independent. Total credit card debt in the U.K. stood at £72.5 billion (about $94.4 billion) at the end of November 2019, with £400 million (about $520 million) added to the balances in November alone based on data from the Bank of England.

Recent rules by the FCA — aimed at cracking down on the burden faced by U.K. consumers who have been carrying persistent debt — could potentially alleviate some of the pain felt by cardholders, although it may force rates to increase again for banks seeking to make up on any potential losses due to forgiven principal, fees and interest.