Analysis based on UK card issuers' data also shows high level
of unused credit could be a risk as festive spending may be an
antidote to a year of woes
LONDON, Nov. 19, 2020 /PRNewswire/ --
Highlights
- Average spending on UK credit cards levelled after previous
months' increases; rates of one missed payment fell
- Rate of two missed payments continued to grow and September saw
first increase in three missed payments since April 2020
- September was second consecutive month to see increase in
average interest charged
- Percentage of payments to balance exceeded September 2019 rates
- Cash usage continued to increase
Global analytics software provider FICO today released its
analysis of UK card trends for September
2020, which shows the continuing impact of COVID-19 on
household finances even while furlough and payment holidays
remained in place during the month.
"The big challenge for credit providers right now is
understanding the true level of financial difficulty consumers are
facing because of the support being provided by furlough and
payment holidays," explained Stacey
West, principal consultant for
FICO® Advisors. "Our UK card data
suggest that many people are becoming more prudent and reducing
their card balances, but those who can't reduce their card use are
increasingly struggling.
"The recent announcement concerning the furlough extension and
increase in percentage paid, along with the extended payment
holidays, will result in increased debt levels being delayed until
further into 2021. Christmas spending is likely to add to that
longer-term debt burden. Of particular concern is that average
balances on accounts missing two or more payments is higher and
growing. Cash usage on cards has also increased month on
month."
Spend on UK cards increases marginally
Average
spending on UK credit cards increased by only £1 in September to
£640. Average spend is now only 2.9 percent lower than a year
ago.
"Regional lockdowns and the end of the school holidays appears
to have curbed the increase in spend seen over the previous three
months," said Stacey West.
"With the introduction of the tier system, with stricter
regulations reducing spending opportunities, October could see this
stabilisation continue. The early part of November could well
reflect extra spending ahead of the month-long national
lockdown."
Monthly payments continue to increase
The percentage
of payments to balance increased for the third consecutive month;
it is now 2.9 percent above September
2019. This is the first time since April that payments have
exceeded those of 2019. The percentage of cardholders paying less
than the full balance fell and the proportion paying the full
balance increased and is now 8.4 percent higher than a year
ago.
"The higher proportion of payments to balance is, of course,
good news. Even if it's a direct consequence of lower balances and
the furlough and forbearance arrangements, it is encouraging to see
consumers trying to manage their debts responsibly," adds
West.
Two and three month missed payments increase
The one
missed payment rates decreased in September after two months of
growth. But the average balance on accounts missing two payments is
9 percent higher than a year ago and the three missed payment rates
increased for the first time since May, with the average balance
11.3 percent higher year-on-year. There is a segment of customers
who could not afford to make their payment in July who continued to
miss payments into September. The October data will show if this
impacts 4+ missed payment rates.
West added: "Whilst it is positive to see the one
missed payment rates falling, the true scale of the debt at risk of
being unpaid will continue to be masked for many months due to the
announcement of the continued support, extended payment deferrals
and the introduction of more forbearance measures by issuers.
Enhancing analytics by using better tools and increasing the data
available will help issuers effectively identify the customers that
need support so that they can communicate appropriately. Open
banking transactional data will remain an important source and it
is anticipated its use will expand in 2021."
Unused credit a risk as Christmas approaches
The
percentage of the card limit utilised on active accounts reached
another over two-year low. September saw a second consecutive
decrease in the average card limit to £5,404. While the highest
proportion of accounts, 29.3 percent, have a limit in the range of
£5,001 to £10,000, the average balance for these accounts is only
£1,242. Those with limits of more than £10,000 have an average
balance of £2,366.
Exposure on inactive accounts is at 34 percent and 72.3 percent
of exposure on active accounts is unused.
"These figures clearly show the level of unused credit in the
market. Despite the lockdown Christmas is expected to push spend up
and a large proportion of consumers will have existing credit
available to use without checks being in place to determine if the
extra spend is affordable," West adds. "Up to 80% furlough
payments until at least the end of March, the Job Support Scheme
and the extension of mortgage, loan and credit card payment
holidays will give some consumers confidence to continue to spend
in the short term.
"Higher card debt levels in 2021 is, therefore, a risk and
issuers will be taking proactive steps to address this with
increased customer interaction to understand the true existing and
delayed financial impact. It is likely that digital communication
will come more into play as a result. It is potentially easier to
ask personal questions and for consumers to respond via digital
channels. But this puts the onus on lenders to ensure they have the
systems and contact details in place now." A recent FICO survey
showed that nearly one in five Britons say their bank doesn't have
their mobile number.
Accounts over their limit remain stable
September saw
a decrease in the proportion of accounts exceeding their limit and
this number is 42.9 percent lower year-on-year. However, the
average amount over limit started to increase again and is 30
percent higher than September 2019.
Cash spend on cards continues to increase
The
percentage of consumers using credit cards to get cash increased
for the second consecutive month, after a significant fall during
the first national lockdown. Although increasing 2.8 percent,
levels are still 53.8 percent lower than a year ago.
This has resulted in a 2.6 percent increase in cash as a
percentage of total spend. Both monthly increases were higher than
those seen in 2019. However, it may be many months until we see the
levels of cash usage reach pre-pandemic levels, and they may not
rise that high again.
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 percent of UK card issuers. Issuers wishing to subscribe
to this service can contact staceywest@fico.com.
About FICO
FICO (NYSE: FICO) powers decisions that
help people and businesses around the world prosper. Founded in
1956 and based in Silicon Valley, the company is a pioneer in the
use of predictive analytics and data science to improve operational
decisions. FICO holds more than 195 US and foreign patents on
technologies that increase profitability, customer satisfaction and
growth for businesses in financial services, 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 helping people
get credit, to ensuring that millions of airplanes and rental cars
are in the right place at the right time.
Learn more at https://www.fico.com
FICO and TRIAD are trademarks or registered trademarks of Fair
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