UK credit card market report – Lenders on high alert

The latest data on UK credit card trends paints a picture of considerable consumer financial volatility as the dual pressures of higher inflation and higher interest rates squeeze funds.

The ongoing inflationary challenges faced by consumers continue to be reflected in higher levels of credit card spend, compared to 2022 – with monthly spend up by 6.7% in March and 8.7% in April.

This forms part of a long-term trend, evidenced by the fact that spend in April 22 was already 21% higher than the equivalent period in 2021.

As a consequence of these increases in spend, the average active balance for both March and April 2023, is 8.2% higher than last year.

When comparing month-on-month movements in spend and arrears, the continuing juggling act being performed by many consumers becomes apparent.

Data for March and April shows a continued see-saw in spend and repayments patterns.

In March, spend was down 6.1% compared to February 2023; the percentage of accounts missing one payment was up 22.8%.

In April there was a 17.9% drop in accounts with one missed payment, whilst the percentage of accounts having missed two payments reduced slightly.

This suggests that many customers are juggling their finances, skipping payments one month and trying to make it up the next month.

Report Highlights

• Average total sales down month-on-month by 6.1% in March and up 12.1 percent in April at £735 and £825, respectively
• Percentage of payments to balance fell year-on-year in both months – by 4.1% in March and 6.1% in April
• Month-on-month, after falling by 15.6% in February, the percentage of accounts missing one payment jumped back up in March by 22.8% and then fell again in April by 17.9%
• Accounts with two missed payments were relatively stable month-on-month in March and April. However, year-on-year they are still significantly higher – by 20.% in March and 19% in April
• Average balances across both months are up 8.2% year-on-year to £1,645 in March and £1,680 in April
• Another sign of financial stress is the use of credit cards to take out cash – in April this increased month-on-month by 4.5% and 9.4% year-on-year

FICO comment

The YoYo pattern of financial management — seen for the last few months — reflects the general economic uncertainty, particularly for mortgage holders.

With increased scrutiny as the new Consumer Duty Guidance comes into force on 31^st July, lenders will be wanting to apply the highest levels of account management.

Areas of particular concern will be the pattern of increased spend but reduced percentage of payments to balance. The average credit card balance has generally been trending upwards since the pandemic slump, and is now back at levels seen pre-COVID.

How consumers are managing their existing financial commitments — especially those who have found themselves, perhaps for the first time, with one missed payment — will also be important to monitor.

As the percentage of accounts with one missed payment YoYoed from March to April, lenders will be looking for any signs of increased financial stress, for example if the percentage of those missing two payments increases.

Currently it seems that cardholders are making a concerted effort not to roll arrears forwards, with the percentage of two missed payments only increasing by 2.1% in March and actually decreasing by 0.3% in April.

However, with such volatile conditions, lenders will want to remain focused on these trends in the next few months.

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