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Reportlinker Adds UK Plastic Cards 2009

November 5, 2009

NEW YORK, Nov. 5 /PRNewswire/ — Reportlinker.com announces that a new market research report is available in its catalogue.

UK Plastic Cards 2009

http://www.reportlinker.com/p0157610/UK-Plastic-Cards-2009.html#utm_source=prnewswire&utm_medium=pr&utm_campaign=prnewswire

Introduction

Published annually, UK Plastic Cards provides an overview of the key trends and issues facing the UK card market. Intense competition, rising write-offs, and a deteriorating economic situation have challenged issuers in 2008 and 2009. This report provides in depth coverage of these and other issues, along with full data for the credit, charge, debit, private label, and prepaid card markets

Scope

*Includes comprehensive data coverage of the UK cards market from 2004 to 2013, including credit, debit, charge, private label and prepaid cards

*Forecast overview including key market drivers and level of influence of these, under a neutral, optimistic, and pessimistic economic scenario

*Analysis of the impact of the recession and its implications for the cards sector, including coverage of consumer card behaviour and attitudes

*Case studies of new product development and strategies being employed globally by key card issuers as a reaction to the downturn

Highlights

The UK plastic card market has undergone a turbulent 18 months as a result of both long term difficulties and new challenges posed by the recession. Despite this, the growth in the overall value of transactions across all card types remains positive, reaching 579.5 billion pounds sterling in 2008. This growth was driven primarily by debit card spending.

The economic environment for cards has taken a beating as a result of the downturn with issuers faced with a drop in both transaction values and balances outstanding. These pressures are likely to continue for some time as consumer spending continues to be subdued by an uncertain economy and rising levels of unemployment.

The recession is exacerbating long term trends of a shift from credit toward debit. Under a neutral economic scenario debit cards transaction values will reach 470 billion pounds sterling by 2013, with a CAGR of 2.9%. Credit will grow to reach 119.5 billion pounds sterling over this same period with a CAGR of 1.5%. Debit volumes at the POS alone will grow by a CAGR of 8.3%

Reasons to Purchase

*Understand the size and composition of the UK cards market and understand what the future holds under a comprehensive range of economic scenarios

*Comprehend the recession’s impact and how the market is reacting with up to the minute data and the latest analysis of emerging trends

*Plan your strategy effectively with case studies and analysis of how key players are adapting to a rapidly changing dynamic environment

Overview 1

Catalyst 1

Summary 1

Methodology 1

Executive Summary 2

UK Plastic Card Market in Review and Future Outlook 2

The UK card market grew by a CAGR of 10.0% from 2004 to 2008, but growth will be weaker to 2013 2

Economic indicators give mixed indications for the future of the UK cards market 3

Market Statistics and Key Trends 3

The number of credit card holders is falling 3

The total number of cards in issue remains flat, with only debit showing growth 4

Card scheme market shares have been volatile over the past five years 5

MasterCard now leads the credit card market 6

Forecasting the UK Payment Card Market 7

Despite the recession the UK cards market will continue to grow through to 2013 7

Competitor Market Shares and Developments in the UK Plastic Card Market 9

Lloyds Group is now the largest credit card issuer by cards in issue 9

Lloyds Group holds a 21% share of credit card balances outstanding 10

Product Innovation in the Downturn: Lessons for UK Issuers 11

Datamonitor has identified six strategies for issuers to maximize their performance in the downturn 11

There are two focus areas for issuers trying to improve the profitability of their business 11

Within this there are six potential strategies that can help issuers to address their pain points 11

TABLE OF CONTENTS 13

Table of figures 14

Table of tables 15

Introduction 16

UK Plastic Cards 2009 is structured in six chapters 16

UK Plastic Card Market in Review and Future Outlook 18

Cards grew by a CAGR of 10.0% from 2004 to 2008, but growth will be weaker to 2013 18

Economic indicators give mixed indications for the future of the UK cards market 19

Inflation is no longer a worry for the cards market 19

Inflation may be easing, but unemployment continues to rise 20

Write-offs continue to be a problem for cards, a problem made worse by unemployment 21

Due to the recession consumer behavior with cards is turning negative for issuers 23

Both balances outstanding and transaction values are showing a decline 24

While dropping balances outstanding, remain surprisingly robust despite the downturn 26

Consumers are also using alternative forms of credit to help make ends meet 27

Changes in overdraft balances tend to follow similar patterns to changes in credit card outstandings 28

In line with long term trends, balance transfers are decreasing 29

Market Statistics and Key Trends 32

UK cards are growing as a share of the total payments market 32

The value of all card transactions is rising 33

The total number of cards in issue remains flat, with only debit showing growth 33

The decline in private label cards may be stabilizing 34

The number of credit card holders is falling 35

The variety of cards by type is polarizing into more premium and standard cards 36

Despite static card numbers, transactions are growing with over 10.1 billion in 2008 38

Transaction values are growing as a result of the growth of debit 39

Charge cards hold the highest average transaction value and shows signs of continuing growth 40

Purchases account for 66.3% of all UK card transactions 43

Debit cards showed the highest rate of growth in transaction value by type between 2004 and 2008 44

Credit transactions are dominated by purchases 45

Charge cards are seeing growth in transaction values, driven primarily by business use 46

Card scheme market shares have been volatile over the past five years 47

MasterCard now leads the credit card market 48

The charge card market has seen American Express’ historic lead solidified into a dominant position 49

The increase in POS terminals have helped drive the growth in transaction volumes 50

The Independent sector continues to drive growth in ATM’s 51

The number of fraudulent transactions continues to rise 52

The successful implementation of chip and pin has led to an increase in card-not-present fraud 53

The value of CNP and counterfeit card fraud continues to rise, driving up overall fraud 54

Forecasting the UK Payment Card Market 56

Despite the recession the UK cards market will continue to grow through to 2013 56

Datamonitor forecasts annual growth in the value of payment card transactions of 2.4% to 2013 56

Datamonitor’s forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products 58

Datamonitor bases its neutral view on forecasts provided by the Treasury 58

The credit card market is likely to remain flat through to 2013 59

Datamonitor forecasts annual growth in the credit card market of 1.1% to 2013 59

Under an optimistic scenario Datamonitor forecasts an annual growth of 3.1% 62

Under a pessimistic view of future economic performance, Datamonitor forecasts an annul growth of -1.2% 64

Debit cards will see the most positive levels of growth over the next five years 67

Datamonitor forecasts annual growth in the debit card market of 2.9% to 2013 67

The charge card market will remain flat through to 2013 70

Datamonitor forecasts that the charge card market will see marginal annual growth of 1.1% to 2013 70

Private label cards will decline through to 2013, but at a slower rate than in the past 72

Datamonitor forecasts that the private label card market will see an annual decline of -5.7% to 2013 72

Competitor Shares and Developments in the UK Card Market 74

Lloyds Group is now the largest credit card issuer by cards in issue 74

Barclaycards remains by far the dominant credit card brand 77

Barclaycard has the largest portfolio of ‘primary’ cards 78

The number of standard and premium cards by brand highlights the largest issuers’ mass market strategy 80

Usage and primacy rates are driven by card features 81

The number and value of transactions per issuer is broadly in line with market share 83

Usage rates are low for most cards despite high rates of primacy 86

Lloyds Group has the highest value of balances outstanding 88

Not surprisingly, Citigroup and MBNA continue to have the highest balance per card on average 90

Repayment rates are significantly higher for cards providing incentives for transacting 91

The debit card market is led by the major high street retail banks 93

Barclays’ leads the market, with 9.9 million debit cards in issue 93

Debit is growing strongly in day to day use 96

Santander now leads the private label card market 99

Private label usage rates are likely to drop as a result of the recession 101

Prepaid cards have strong growth potential, but are likely to remain niche 103

Barclaycard, Tesco Personal Finance and Santander have performed strongly in 2009 107

Barclaycard is pushing forward in creating incentives for card usage 108

Barclaycard is leading the market in developing contactless payments 108

Barclaycard is developing a new loyalty program 110

Barclaycard is forming strategic partnerships with key brands and service providers 111

Tesco Personal Finance is poised for strong growth as it moves to become a bank 112

Santander will expand in the cards market, to the detriment of MBNA 113

Card issuers must choose between diversifying and refocusing on core strengths 115

Product Innovation in the Downturn: Lessons for UK Issuers 116

Datamonitor has identified six strategies for issuers to maximize their performance in the downturn 116

There are two focus areas for issuers trying to improve the profitability of their business 116

Within this there are six potential strategies that can help issuers to address their pain points 116

The Datamonitor Financial Services Megatrends Framework is an excellent tool for identifying potential strategies 117

The Megatrends Framework can be used as a key tool in shaping product strategies 118

Reducing cost through rationalizing out unprofitable customers is delicate but nevertheless important 118

American Express offered to pay customers to leave in order to close a number of unwanted accounts 118

Imposing fees for inactive accounts is also an option 119

Winning back existing customers can be achieved by linking benefits to a full suite of banking services 119

Citibank offers an extensive reward program that offers benefits across a range of banking products 119

This is an interesting proposition, as it places the focus for value on the banking relationship rather than individual products 121

Offering a strong card-based reward program is also an option here, and issuers should look at the Banesto Diez en Una card 122

Targeting new customers with good credit histories will require an outstanding offering and one with strong rewards 123

Bank of America’s Accelerated Cash Rewards card offers cashback at 1.25% 124

Explicitly offering more attractive terms to better credit risks is a strategy employed by Capital One in the US 124

The Capital One Card Lab takes this a stage further by allowing consumers to customize their products 125

Cards with an installment option present opportunities in dealing with potential risks 127

Cardholders who may fall into difficulties should be encouraged to structure their balances 127

Offering installment repayment options may also allow issuers to reduce their risk exposure 128

Standard Chartered introduced a credit card in Singapore that automatically splits larger purchases into monthly installments 129

Creating incentives for repaying borrowing can help issuers to manage potential credit risks 130

ANZ Bank has launched a product that rewards cardholders for repaying balances 130

The interesting feature of this product is that it effectively rewards both card activity and repayment 130

The product aligns the interests of the cardholder with the issuer in a time of economic uncertainty 131

Discover has a similar proposition that rewards payments made on time 131

In the US, Discover launched the Motiva card, which rewards on-time payments 132

The product is likely to result in cardholders with multiple products prioritizing payments to Discover 133

Discover is also proactively communicating with its customers to set structured repayment plans for balances and to allow for accurate spend monitoring 133

Alongside this, the Spend Analyzer tool allows cardholders to get a clear view of their spending habits 134

However, initiatives such as these are not the only way to improve cardholder behavior 136

Winning back transactions from debit is a key strategy and can be achieved by linking rewards to other financial products 136

Fidelity offers a credit card linked to a full suite of savings reward programs for all walks of life 136

APPENDIX 139

The financial services Megatrends Framework 139

Datamonitor has identified 10 Megatrends in consumer behavior 139

Megatrends are tools for capturing the drivers of consumer behavior 139

A Megatrends Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors 139

A trend framework is used for generating and selecting ideas 140

A Megatrends Framework is vital for financial services 140

Customer retention as well as customer acquisition must be considered 140

There are inherent obstacles in financial services that limit innovation in customer targeting 140

Greater customer understanding can help overcome the obstacles found with targeting and communicating to customers 140

The six behavior trends identify the benefits that consumers wish to gain from a product or service 142

Authenticity 142

Comfort 142

Connectivity 142

Convenience 143

Individualism 143

Wellbeing 143

The four complexities are areas within which traditional assumptions or measures of behavior no longer apply 144

Demographic complexity 144

Financial intelligence complexity 144

Lifestage complexity 144

Wealth complexity 144

Definitions 145

AAGR 145

Affinity card 145

APACS 145

ATM-only card 145

Average transaction value 145

Balances outstanding 145

Bank of England base rate 145

CAGR 146

Charge card 146

Co-branded card 146

Credit card 146

Debit card (pay now) 146

EMV 146

FLA 146

Fraudulent use of card details (card-not-present fraud), also known as fraud on phone, mail order or internet transactions 147

Frequency of use 147

Interchange 147

Non-standard 147

OFT 147

POS terminal 147

Private label card 147

Turnover per card per year 148

Methodology 148

Primary research 148

Secondary research 148

Further reading 149

Ask the analyst 150

Datamonitor consulting 150

Disclaimer 150

List of Tables

Table 1: Forecast UK plastic cards market 2009-13 19

Table 2: Datamonitor’s forecast of transaction values for the UK plastic card market, 2009-13 57

Table 3: Datamonitor’s neutral scenario forecast of the total UK card market 2009-13 58

Table 4: Forecast performance of the UK consumer credit market drivers under the neutral scenario, 2009-13 59

Table 5: Datamonitor’s five year forecast of the credit card market under a neutral scenario, 2009-13 60

Table 6: Market drivers for the UK credit card market under Datamonitor’s forecast scenario, 2004-13 61

Table 7: Datamonitor’s five year forecast of the credit card market under an Optimistic scenario, 2009-13 62

Table 8: Market drivers for the UK credit card market under an optimistic scenario, 2004-13 63

Table 9: Forecast performance of the UK consumer credit market drivers under an optimistic scenario 2009-13 64

Table 10: Datamonitor’s five year forecast of the credit card market under a pessimistic scenario, 2009-13 65

Table 11: Market drivers for the UK credit card market under a pessimistic scenario, 2004-13 66

Table 12: Forecast performance of the UK consumer credit market drivers under a pessimistic scenario 2009-13 67

Table 13: Datamonitor’s five year forecast of the debit card market, 2009-13 68

Table 14: Market drivers for the UK debit card market under a neutral scenario, 2004-13 69

Table 15: Datamonitor’s five year forecast of the UK charge card market, 2009-13 70

Table 16: Market drivers for the UK charge card market under Datamonitor’s forecasting scenario 2004-13 71

Table 17: Datamonitor’s five year forecast of the UK private label market, 2009-13 72

Table 18: Market drivers for the UK private label card market under Datamonitor’s forecasting scenario 2004-13 73

Table 19: Consumer perceptions of the features on their credit card by brand 82

Table 20: UK prepaid cards by number of cards in issue by brand and issuing group 105

Table 21: Prepaid transaction by type, frequency, value and average balance per card per year 107

Table 22: Capital One’s classification of credit ratings in the US, 2009 125

Table 23: Current relevant publications, 2008-09 149

Table 24: Future relevant publications, 2009 149

List of Figures

Figure 1: The value of transactions across UK cards grew by a CAGR of 9.9% between 2004 and 2008 2

Figure 2: The gap between debit and credit card holdings has grown since 2005 4

Figure 3: The total number of cards in the market has grown due to the growth of debit 5

Figure 4: Visa has successfully grown its debit card market share to nearly two thirds of the sector 6

Figure 5: MasterCard has successfully grown its credit card positioning to 58.1% of the market 7

Figure 6: The total UK card market will see growth in transaction values through to 2013 8

Figure 7: Following the merger with HBOS, Lloyds now dominates the market 9

Figure 8: Lloyds holds 21% of the market by balances outstanding but is closely followed by MBNA at 20% 10

Figure 9: Issuer strategy evolves around two pillars and six potential areas to target 12

Figure 10: Following a CAGR of 10.0% from 2004-08, growth will slow to a CAGR of 2.5% from 2009 to 2013 18

Figure 11: While a concern last year, inflation has dropped, while deflation is now a potential risk 20

Figure 12: Despite predictions card write-offs have not risen as sharply as unemployment 21

Figure 13: The index of write-offs, insolvency, and unemployment suggests probable growth in write-offs 22

Figure 14: Although momentarily stabilizing, the value of card write-offs has grown over the past 10 years 23

Figure 15: Both balances and transaction values are declining compared to their position the previous year 24

Figure 16: 2009 transaction value, continue to fall below the previous year following the collapse of Lehman 25

Figure 17: Transaction values have seen a sustained decline since December 2009 26

Figure 18: Despite some seasonal fluctuations, quarterly outstanding balances have remained broadly stable 27

Figure 19: Hard pressed consumers are turning to other forms of credit such as overdrafts 28

Figure 20: Quarter on quarter growth in overdrafts and credit card outstandings show a strong correlation 29

Figure 21: Monthly balance transfers are showing long term decline 30

Figure 22: The value of balance transfers have dropped by 52% between Q1 2006 and Q2 2009 31

Figure 23: Plastic cards have grown to a 6.5% share of the total UK payments market 32

Figure 24: The value of card transaction grew by a CAGR of 9.9% between 2004 to 2008 33

Figure 25: The total number of cards in the market has grown due to the growth of debit 34

Figure 26: The private label card market has declined 33% since 2004, but the rate of decline is slowing 35

Figure 27: The gap between debit and credit card holdings has grown since 2005 36

Figure 28: The share of platinum and co-branded cards has grown while affinity and gold cards has declined 37

Figure 29: There were over 10.1 billion card transactions in 2008, compared to 8.0 billion in 2004 38

Figure 30: The bulk of transaction growth per card is from debit cards which had an AAGR of 4.4% from 2004-08 39

Figure 31: The total value of all transaction had a CAGR of 9.9% between 2004 and 2008 40

Figure 32: Charge cards hold the highest average transaction value at 117.86 pounds sterling in 2008 41

Figure 33: Charge cards also hold by far the highest turnover per card at 7,505 pounds sterling in 2008 42

Figure 34: Debit card turnover per adult in the population is strongly led by debit at 8,661 pounds sterling in 2008 43

Figure 35: UK purchases continue to constitute the bulk of all UK card transactions 44

Figure 36: Debit card transaction values had a CAGR of 13.1% between 2004 and 2008 45

Figure 37: The credit market remains flat, and has had a CAGR of only 1.0% from 2004-08 46

Figure 38: Charge cards have seen the highest growth by transaction values with a CAGR of 13.9% 47

Figure 39: Visa has successfully grown its debit card market share to nearly two thirds of the sector 48

Figure 40: MasterCard has successfully grown its credit card positioning to 58.1% of the market 49

Figure 41: The charge card market remains dominated by American Express with a 50.9% share 50

Figure 42: The number of POS terminals continues to rise, growing by nearly a fifth since 2004 51

Figure 43: ATM numbers are also rising, yet 2008 saw a slight drop in the number of independent machines 52

Figure 44: Despite the introduction of EMV in 2006, instances of card fraud continue to grow 53

Figure 45: Card not present fraud and counterfeit cards are the only forms of fraud seeing growth 54

Figure 46: Following from a 15.4% decline, the value of card fraud has grown 42.8% between 2006 and 2008 55

Figure 47: The total UK card market will see growth in transaction values through to 2013 56

Figure 48: Following the merger with HBOS, Lloyds now dominates the market 75

Figure 49: The newly formed Lloyds Group is now the UK market leader with 22.3% of cards in issue in H1 09 76

Figure 50: Barclaycard is the largest player by brand ahead of both Lloyds TSB, and HBOS 77

Figure 51: Barclaycard by far has the highest number of primary cards in the market 78

Figure 52: Tesco and John Lewis/Waitrose are the primary card for more than 75% of their customers 79

Figure 53: 40% of Barclaycard’s cards in issue are premium branded 80

Figure 54: There were 278 million transactions made on Barclaycard branded credit cards in 2008, ahead of NatWest and Lloyds TSB branded products 84

Figure 55: Transaction values follow a very similar pattern to transaction numbers, with Barclaycard and NatWest leading the market in 2008 85

Figure 56: Regardless of total transaction values, average spend per transaction is highly variable 86

Figure 57: Tesco and American Express have the highest proportion of cards that are used all the time 87

Figure 58: Lloyds Group now has the highest level of balances outstanding, followed closely by MBNA 88

Figure 59: Lloyds holds 21% of the market by balances outstanding but is closely followed by MBNA at 20% 89

Figure 60: Citigroup has the highest average balance per card, growing 30% since June 2007 91

Figure 61: Repayment rates are higher for cards with rewards and incentives, with cardholder most likely to revolve on Virgin Money and MINT cards 92

Figure 62: The number of debit cards in issue has increased in H1 2009 94

Figure 63: The debit card market is evenly divided between the dominant big leading banks 95

Figure 64: POS makes up more than 70% of all debit transactions by volume 96

Figure 65: POS accounts for 60% of all debit transactions by value 97

Figure 66: Average spend levels are highly variable by issuer 98

Figure 67: Santander is by far, the dominant issuing group of private label cards as at H1 2009 99

Figure 68: Debenhams is the leading brand for private label store cards 100

Figure 69: The private label sector is fragmented, with Debenhams leading with a 17% market share 101

Figure 70: The overall number of cancelled private label cards in the UK market is high 102

Figure 71: With the highest brand awareness, Virgin and PayPal lead the prepaid cards market 103

Figure 72: The prepaid cards sector is dominated by four issuers accounting for 75% of the market 104

Figure 73: POS dominates prepaid card usage, with 5.5 billion pounds sterling of POS transactions in 2008 106

Figure 74: Barclaycard used viral marketing techniques as part of its campaign 109

Figure 75: MyBarclaycard will offer users in-depth online card management services 111

Figure 76: Barclaycard is strengthening its branding with younger consumers through strategic sponsorship 112

Figure 77: The Santander rebranding of Abbey has begun in London 114

Figure 78: Issuer strategy evolves around two pillars and six potential areas to target 117

Figure 79: Citi’s ThankYou Network reward program is linked to credit cards and other retail banking products, 2009 120

Figure 80: Citi’s website for its ThankYou Network reward program offers a range of redemption options 121

Figure 81: The Banesto Tarjeta Diez en Una product offers a permanent 5% discount at 10 major retailers 123

Figure 82: Bank of America Accelerated Cash Rewards offers 1.25% on all purchases, 2009 124

Figure 83: Capital One Card Lab portal, 2009 126

Figure 84: BMO offers reduced interest loan consolidation offer for loans and credit card balances, 2009 128

Figure 85: Swedbank offers three distinctive card products including installment, revolving and charge cards, 2009 129

Figure 86: ANZ Balance Visa offers reward points for paying back cardholder’s balance, 2009 131

Figure 87: Discover Motiva card designed to reward customers for paying back on time, 2009 132

Figure 88: Discover’s Paydown Planner tool helps cardholders to pay back the money owned, 2009 134

Figure 89: The Spend Analyzer is easy to use and useful tool for cardholders managing their finances, 2009 135

Figure 90: Fidelity credit card range is linked to innovative savings reward programs, 2009 138

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UK Plastic Cards 2009

http://www.reportlinker.com/p0157610/UK-Plastic-Cards-2009.html#utm_source=prnewswire&utm_medium=pr&utm_campaign=prnewswire

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