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Changes in European payment card products: Not always as expected

First Annapolis has been closely monitoring European payment card products since October 2015 to identify issuers’ reactions to interchange regulation implemented in December 2015, and to track the evolution of product offerings and pricing.

Twice a year, we review the payment card products offered by the largest issuers in 15 European countries, totaling 78 issuers and around 1,000 debit, credit, prepaid consumer, and business card products – say Erik Howell, Principal and Elisabeth Magnor, both specializing in European Initiatives at First Annapolis.

During the last three years, they have observed 275 product changes: of those, approximately 70% were unfavourable for cardholders (see Figure 1). As expected, issuers have increased pricing and reduced rewards in anticipation of and, in response to, interchange regulation. These changes have manifested in several ways other than simple fee increases or elimination of rewards programs:

  1. Low fee cards are increasingly being replaced by cards with higher fees;
  2. Newly released products rarely come without an annual or monthly fee;
  3. ATM withdrawal and foreign exchange (FX) fees have increased; and,
  4. Rewards have been capped.

These trends are summarized in Figure 1 and described in more detail below. As we look forward, European issuers’ product responses to interchange regulation appear to have stabilised, and further changes to products and propositions are likely to be evolutionary rather than revolutionary.

Figure 1: Summary of European Card Product Changes Between October 2014 and January 2017
(by number of issuers; n=78)

Source: First Annapolis Consulting European card product research, company websites.

Trend #1: Low cost or free cards have been replaced by cards with higher annual fees
Between October 2014 and January 2017, 49% of the issuers we track in our sample have launched at least one new card product, and 35% of issuers have discontinued at least one card product. (See Figure 2 for examples of specific product changes).

Figure 2: Example Characteristics of New and Discontinued Card Products in Europe

Source: First Annapolis Consulting European card product research, company websites.

Trend #2: Rather than discontinue co-brands, European issuers have launched new versions of existing co-brands
Several new versions of existing co-brand programs have been launched, many of which were launched by retailers that issue their own cards (Tesco in the U.K. in particular). In our sample, we have observed 8 new co-brand products and only one discontinued product during the last two years. Of the new products, however, only one has no annual or monthly fee. Issuers appear to be addressing challenges with co-brand economics via renegotiations with partners and tweaks to the product set rather than wholesale termination of existing partnerships (see Figure 3).

Figure 3: European Co-brand Card Product Changes Between October 2014 and January 2017
(by number of cards; 90 researched co-brand cards in 15 European markets)

Source: First Annapolis Consulting European card product research, company websites.

Trend #3: Some rewards have been eliminated, but many have been reduced in less obvious ways
In addition to discontinuing rewards on certain card products, European issuers are also making cost-saving adjustments to remaining rewards programs. Issuers have eliminated welcome/sign-up bonuses for new cardholders, reduced earn rates, capped the maximum amount of rewards that can be earned per month, or specified in advertising that rewards can be earned only through a certain date (rather than committing to a permanent program). Additionally, new products with rewards components typically include points and discounts at selected merchants, rather than points or cash back at all merchants.

Trend #4: Annual and monthly fees for all card types have been introduced or increased, but with heavy use of waivers on credit cards
As expected, many issuers have increased or added annual or monthly fees. Rather than implement straight fee additions or increases, however, many European issuers have softened the perceived customer impact by implementing a series of waivers (see Figure 4). The percentage of credit cards offering monthly/annual fee waivers for new cardholders has also increased slightly, from 24% in October 2015 to 27% in January 2017. The type of annual/monthly waivers offered also tends to be country-specific. For example, annual fee waivers for new cardholders are typical in Spain and Switzerland. In the Czech Republic and Poland, fee waivers are typically based on meeting defined spend thresholds, whereas in Sweden and the Netherlands it is common for issuers to assess lower fees on clients who have an account bundle or other banking relationship.

Figure 4: European Credit Card Fee Waivers and Discounts

Note: Credit cards researched was 617 in January 2017 and in 374 October 2015.
Source: First Annapolis Consulting European card product research, company websites.

Trend #5: ATM and FX fees have increased
As shown in Figure 5, issuers have increased ATM withdrawal fees, particularly in Scandinavia, where government initiatives to promote a cashless society are more visible. Surprisingly, some of the largest increases in percentage terms are for ATM withdrawals at issuers’ own ATMs. Additionally, FX fees have increased across the board.

Figure 5: Example Changes in ATM and FX Fees

Source: First Annapolis Consulting European card product research, company websites.

Future Outlook

European issuers’ product sets appear to have stabilized following a series of changes in anticipation of, and in response to, interchange reductions in December 2015. We expect future changes to products and propositions to be evolutionary (continued development during the normal course of business) rather than revolutionary.

We expect that European card issuers will concentrate future product development efforts on digital propositions and on increasing the penetration of credit cards and revolving credit. In particular, there are several opportunities for issuers in under-penetrated segments, including:

  1. Increasing penetration and usage of traditional revolving credit cards via tactical marketing;
  2. Launching new forms of digital credit (e.g., digital installments, installments in mobile app, etc.) both on and off of traditional credit cards;
  3. Increasing penetration of small business credit cards;
  4. Re-invigorating private label credit cards (i.e., store cards), particularly by integrating PLCC into retailer loyalty programs; and,
  5. Offering standardized sales finance programs for smaller retailers (linked to #2 and #4 above).

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