A Decade of Cards and beyond

Transcription

1 A Decade of Cards and beyond

2 A Decade of Cards and beyond

3 The decade in numbers: An overview The 2000s see plastic come of age as credit and debit cards dominate the way we pay; by 2010, cash loses its crown as top method of consumer payment for the first time in history as debit card spending continues to grow. Consumers find debit cards more appropriate for daily use, but still value credit cards for large purchases and for additional consumer protections 1.5 million fewer adults use a credit card each month in 2010 compared to million credit and charge cards are in issue by 2005, up from 50 million in 2000; this compares to 67 million debit cards in 2005, up from 49.7 million in By 2010, credit cards in issue fall back to 55.6 million, with a further 6.6 million charge cards many dormant accounts are closed. At the same time debit cards have continued their rise by 2010 there were 84.6 million in circulation. Credit card spending reaches 124 billion in 2005 but levels off in second half of decade as debit card usage takes off. 98% of card spending growth between 2005 and 2010 is on debit cards. Use of cards instead of cash and cheques enables the growth of a new industry internet retailing. In 2000, two per cent of card spending is online. This is 13% in 2010 and will keep growing. Average spend on credit and charge cards rises in the second half of the decade, reaching 2,151 per card in 2010 as multiple card holding falls and dormant accounts are closed. At the same time, the number of accounts paying their balance in full each month rises from 55% to 62%. Over six and a half billion transactions are made on debit cards in 2010 to a value of 299 billion, compared to two billion credit card purchases, totalling 111 billion. Credit cards are still favoured for use overseas. 63% of overseas card spending by value is on a credit card in 2010, although this is down from 86% in Debit cards are increasingly widely accepted and account for 37% of overseas card spending by value in 2010, but much more in terms of the number of transactions. Cash acquisition overseas moves from credit cards to debit cards, shrinking from 28% of cash taken out on a card to 10% by Travellers acquire 7 billion on all cards in 2010, up from 2 billion in In the UK, 3.8 billion is taken out on credit cards in 2010, down from 9.2 billion in Debit card cash withdrawals hit 172 billion in 2010, more than doubling since Borrowing on credit cards peaks at 69 billion in April 2006, falling to 58 billion in It is likely that student loan debt will exceed credit card debt within three years. Card crime falls sharply as industry moves to keep ahead of criminals. Fraud losses fall 40% in 2010 compared to their 2008 peak and are lower than at any time since Page 1

4 1. Introduction The 2000s were the big decade for plastic, as credit and debit cards came to dominate the way we pay. Consumers have increasingly used cards in place of cash and cheques, particularly as they have gained in popularity as a convenient alternative everywhere from the pub to the supermarket. The opportunity to combine all their payment needs into one small object has been one that consumers have relished. This was most apparent when, in 2010, cash fell behind debit cards in the consumer payment rankings, making the debit card the nation s favourite way to pay for the first time in history. The story of plastic cards in the 2000s can be characterised as a decade of two halves. The early years saw strong growth in credit cards as the number of cards in issue grew at double digit rates, credit card debt rose and repayments fell. This contrasted with the later years which were marked by flat spending, higher repayments and a fall in credit card holding. Since 2005, it is the rise of the debit card that has driven a big shift in how we pay for goods and services; 91% of the growth in all card spending over the last five years has been on debit cards. Credit cards were first on the scene decades before debit cards came along, with the first card being issued over 45 years ago. The market was initially slow to grow and it took until 2000 for the first 50 million or so credit and charge cards to be issued. However, in that time the UK has become a world-leader in terms of market competitiveness and choice. With flexibility over how much you borrow, how and when you repay, coupled with the advantage of added consumer protection, the credit card has defined a clear role for itself. Great strides have been made by the credit card industry over the last ten years to improve transparency and give cardholders greater control over their finances. The introduction of the Summary Box in 2003, letting cardholders more easily compare the main features associated with specific products; the minimum repayment health warning on all credit card statements in 2004 and improved data sharing have all helped shape the credit card s role. The industry recently made further voluntary changes 1 to help cardholders, improving communication about interest rate changes and ensuring the most expensive debt is paid off first. We anticipate these changes will help cardholders use their cards more responsibly and take full advantage of all the benefits they offer. Tackling fraud has also been high up on the industry s priority list over the last decade. Innovations like chip & PIN, which cost over 1 billion to introduce, along with MasterCard SecureCode and Verified by Visa have helped to reduce fraud. The industry has also funded 1 Page 2

5 a dedicated police unit which fights plastic card and cheque fraud and has developed smarter ways of sharing fraud intelligence, through the Fraud Intelligence Sharing System (FISS).These measures have been introduced at the same time as better systems to detect fraudulent transactions on accounts and against a background of increased public understanding of the importance of anti-virus software and computer security. Without these changes plastic card fraud losses were forecast to have tripled, and the industry would not be in the same advanced position that it is now in its fight on fraud. Charitable giving has also benefited from the popularity of plastic cards. Donating online via a charity s website or a Just Giving page has been made possible thanks to plastic cards. The industry has also been keen to lend its support by waiving card fees in major humanitarian emergencies and appeals to ensure that the charity receives the full donation. Credit cards have a very important place in our pockets. There are still lots of reasons why customers choose to use one and we still have more credit cards in the UK than anywhere else in Europe. With 55.6 million credit cards in issue and 31 million credit card holders, 4,700 is spent on our credit and charge cards every second. The UK Card Association s review of a decade of cards sets out the main drivers and key events of the last ten years. Page 3

6 2. Card Ownership in the UK International comparisons When it comes to cards, UK consumers are more like those in culturally similar countries like Australia and New Zealand than to those in our neighbouring countries. We have approximately 60% more credit and debit cards than our European neighbours, being the biggest holders in respect of credit cards. We collectively held 55.6 million credit cards at the end of 2010, just over one card for each adult, not including 6.6 million charge cards. Three out of every five adults hold at least one credit card. The last decade saw a wider range of options, and in many more places, for paying by card for the goods and services we buy. The credit card market grew consistently until 2005 before flattening out. Debit cards have since come to dominate the scene as they offer the convenience of plastic without the option to borrow, making them ideal for the things we buy every day, for example in supermarkets and petrol stations. Attitudes to borrowing have changed and, in recent years, the economic downturn has led to a reduction in the amount credit lenders are prepared to advance as they have reassessed risk. UK consumers have shifted faster and further away from credit cards, but Australia and New Zealand are also on the same path. The first half of the noughties At the start of the decade, debit cards were already widespread, with 77% of adults holding a debit card in They were used less than today partly because people preferred cash and cheques and partly because, in the days before chip & PIN, they weren t as widely accepted in places such as pubs, dentists and hairdressers. It became easier and cheaper to borrow in the early 2000s. The first half of the decade saw 23 million new credit card accounts opened. By March 2004 the average APR on credit cards had fallen to 14.8% (a level only briefly improved on in 2008). Improved credit scoring gave new customers access to credit card products, while the convenience of credit cards for situations like foreign travel led to strong demand. These factors combined to mean the number of cards grew at double digit rates from 2000 to growing the market by half in just four years. 651,000 new charge cards were also issued over the same period. Page 4

7 Chart 1. Number of credit, debit and charge cards in issue Chart 2. Percentage of adults with a credit/charge or debit card Turning of the tide for credit cards The credit card market peaked in 2005 with 69.9 million credit cards in issue, as well as 4.7 million charge cards. More than two thirds of adults held a card and, even if they weren t often used, multiple cardholding was common (each cardholder had an average of 2.4 cards). Amid concerns about indebtedness, consumers started to heed messages about the need to borrow responsibly and credit card issuers made improvements to their responsible lending practices. By 2010 there were 14.3 million fewer credit cards in our wallets compared to 2005 even though the adult population swelled by some two million. Page 5

8 Chart 3. Credit/charge card holding, by socio-economic group The sharpest decline was in 2009 when almost one in eight (7.8 million) UK credit cards left our wallets. As the recession bit hard, card issuers sought to close dormant accounts and reduce exposure to risk by declining more applications (almost half were refused in 2009, compared to two in five in 2008). At the same time low & grow products tailored specifically for lending to higher risk customers started to emerge. Typically, credit limits start low, say at 250, and gradually grow over time, allowing customers to establish a credit history by showing that they can manage the credit. End of the decade debit card dominance By the end of the decade it is the debit card that has become the nation s favourite way to pay. Debit card spending overtook cash spending for the first time in Not only has the number of people holding credit cards continued to decline (four per cent of the cards in issue left our wallets in 2010), but credit cards are being used less often by the people who have them. Fewer than two in five adults used credit cards every month in 2009, down from almost half of credit card holders in One and a half million fewer adults now use their credit card every month than in the middle of the decade. Page 6

9 Chart 4. Cardholders who use their cards each month Who owns the cards, where are they found and how are they used? Credit and charge card holding has seen little change since 2000 in the wealthiest AB 2 social group. Better off consumers were very early adopters of credit cards and still hold them in large numbers - over 85% of people earning more than 50,000 have a card. This compares to less than half (46%) of people earning between 5,000 and 10,000. Adults in the AB group are more than twice as likely as those in social group E to have a card (74% vs 35%). Debit cards tell a different story. There is a much smaller disparity between AB Adults (89% have a debit card) and adults in group E (64%). The high take-up of debit cards across all socio-economic groups means that even if credit is harder to come by for lower income groups, they need not be excluded from commerce as the world increasingly moves to cards and other forms of electronic payment. ACORN 3 population groupings show how card holding reflects customers ability to afford their spending on credit and charge cards. Wealthy executives hold more than one in eight (12.7%) credit cards, despite making up just one eleventh of the population (8.8%). Flourishing families and secure families are also significantly over-represented, whilst burdened singles and those in high-rise hardship hold only 2.7% of cards, despite accounting for 6.1% of the population. As you would expect, credit limits and spending are higher for those in more affluent groups too, with the most affluent groups spending on 2 Further information on socio-economic groups can be found at 3 ACORN is a geo-demographic segmentation of the UK s population which segments small neighbourhoods, postcodes, or consumer households into five categories, 17 groups and 56 types. For more information on the various definitions of certain groups, please see Page 7

10 average four times more per annum than the poorest groups ( 3,440 for wealthy executives compared to 880 for those in high-rise hardship ). Asian communities are among the lowest spenders on credit cards, reflecting cultural attitudes that favour saving and, among some groups, that shun borrowing altogether. There is also considerable geographical variation in cardholding around the country, primarily owing to big differences in wealth between regions. The wealthiest regions of the south east and parts of the north west have the most credit cards per adult, reinforcing how income is a key influence on credit card holding. Similar patterns are seen across social class, with ABs most likely to have multiple cards, but also most likely to pay them off every month. Credit card accounts per adult, by constituency Page 8

11 3. Debit and credit card spending In 2000, spending was higher on credit cards that debit cards. By 2005 this had already changed as spending on debit cards matched credit cards for the first time and the trend continued through the rest of the decade. 91% of the growth in card spending over the last five years has been on debit cards, with 2010 figures showing that 68% of all plastic card spending in the UK was on a debit card. UK consumers used their debit cards to make over six billion purchases of goods and services in this country in 2010, and their credit and charge cards to make two billion more. The total number of credit card transactions has changed little in the last six years, though they are being used more often (35 times in 2010 compared to 29 in 2004) as multiple cardholding has declined and some cardholders have dropped out of the market. Chart 5. Number and value of debit card purchases Debit cards are increasingly being used in place of cash, cheques and credit cards. 299 billion was spent on them in 2010, a 10.7% increase on In contrast, credit and charge card spending in the UK saw a decline in real terms, increasing by less than inflation from 2009 to 2010, reaching 136 billion. Spending growth on credit cards has been subdued for several years, reflecting the smaller number of credit cards in issue and the migration to debit cards. It has increased by less than two per cent annually since 2004, far slower than inflation. Page 9

12 Chart 6. Number and value of credit card purchases On a per card basis, the picture is reversed. The average annual spend per credit card rose to 2,151 in 2010, up from 1,700 per card at the start of the decade, suggesting that the frequency of credit card use has increased, even as the number of cards has shrunk. Chart 7. Credit card spending by category, 2010 ( billion). Page 10

13 What we buy with our credit cards is more evenly spread across the main categories of expenditure than debit card spending. In fact, the pattern of credit card spending is virtually unchanged over the past ten years, with the notable recent exception of food and drink, which has increased its share of credit card spending by 36% over the last three years. Food and drink is the main category we use our credit cards to buy (15% of spending), while supermarkets, by a wide margin, were the place where credit cards were most often used last year. Chart 8. Debit card spending by category, 2010 ( billion). Page 11

14 4. The internet revolution how credit and debit cards enabled a new industry to develop Online spending has changed the face of retailing in the last decade. In 2000, a tiny minority of all card spending was over the internet just 2.13 in every 100, equating to 3.5 billion in total spent with online merchants. By 2010, this had soared fifteen-fold to 53.6 billion, with from every 100 spent online and double digit growth continuing, even through the recession. Chart 9. Online card spending We have also changed our preferences in the cards we use to spend online. At the start of the decade credit cards were often preferred, accounting for more than seven pounds of every ten (72%) spent online in This shifted over the remainder of the decade in 2010 credit cards comprised about half (52%) the amount we spent online, compared to less than a third of the total we spent on plastic, both on and off line. The additional consumer protection offered by a credit card in the shape of Section 75 of the Consumer Credit Act, and the perceived advantage of ring-fencing online spending in an account not linked directly to your current account are good reasons for using a credit card online, but this hasn t prevented debit cards from gaining ground. Page 12

15 Chart 10. Consumer internet card spending year olds are most likely to shop over the internet, but there is otherwise relatively little variation in usage between demographic groups. Internet shopping on all credit, charge and debit cards is skewed towards wealthier groups, but then so is all shopping. Two thirds of adults (67%) made a purchase over the internet in Of those buying online, 70% bought a book, CD or DVD, with almost half booking travel (49%). Men are more likely to buy software and computers when shopping online, while women prefer clothes and are seemingly responsible for the groceries. Page 13

16 5. Cards and charity It is not widely appreciated what a large role cards have come to play in charitable giving in the UK. The most direct example is the many affinity cards that are branded with a charity s name, where the card company makes a donation each time the cardholder uses the card, or when the account is first opened. Plastic cards have also been instrumental in the major growth area of online giving. In billion was donated to charitable organisations on plastic cards, an increase of 19% on the year before. In addition, the card industry waives fees to help ensure that 100% of donations towards major humanitarian emergencies co-ordinated by the Disasters Emergency Committee and big UK charity events like Children in Need reach the charity. In 2010 alone, four major appeals benefited from the waiving of fees on credit and debit cards. The card industry also financially supports and works with the Internet Watch Foundation, a charitable organisation established in 1996 by the UK internet industry to remove web content which contains child abuse images, criminally obscene adult content and materials inciting racial hatred. Additionally, banks and card companies monitor use of card services by businesses and act to terminate merchant services for firms that are selling illegal or inappropriate goods, services or content. Page 14

17 6. Overseas spending The cards revolution has made travelling far easier for UK consumers and opened up the opportunity of shopping overseas, whether in person or online. Cards have in large part replaced the need for cash or travellers cheques, providing much greater convenience for holidaymakers and business people. However, in recent years the amount British citizens spend abroad on all types of payment has fallen. According to the International Passenger Survey from the ONS, there were two million fewer visits abroad in 2010 than 2000, with figures down 24% on their late 2007/early 2008 peak of over 70 million. In line with these numbers, the amount British citizens spend abroad peaked in the second half of 2007 and the first half of Spending abroad in 2010 was in fact 17% lower than at its peak, coming in at 30.6 billion. The share of overseas spending on credit cards has fallen, impacted by the general trend of flat credit card spending, the growth of debit cards and their increasing acceptance in other countries. 86% of the money we spent on plastic overseas in 2000 was on a credit card, a figure which had fallen to 63% by Debit card spending overseas has come from virtually nowhere in 2000 (14% of spending) to account for the majority of transactions by volume and 37% of the overseas spend in A contributory factor was the 2010 decision of two major card issuers to migrate their debit cardholders from Maestro to Visa Debit, which is more widely accepted, especially in continental Europe and the USA. Travellers seem to prefer debit cards for smaller purchases like meals and shopping while credit cards are reserved for big charges like hotel bills and car hire, and for online spending, perhaps because of the additional consumer protection offered for transactions over 100. Chart 11. Share of overseas spending. Page 15

18 Acquiring cash overseas The way UK travellers acquire cash abroad has also changed markedly. Increasing acceptance of UK debit cards abroad has seen canny travellers avoid the additional cost of taking out cash on a credit card in 2010 credit cards only accounted for one pound in every ten we withdrew abroad, compared to more than one in four (28%) in The decline in use of credit cards for cash withdrawals abroad could suggest that consumers are wisely reserving their credit cards for emergencies, rather than as an immediate source of cash. Chart 12. Cash acquisitions overseas Page 16

19 7. Responsible borrowing, responsible lending Over the last ten years the industry has made great strides to improve credit card transparency as it has responded to major changes in the economic and regulatory environment. The introduction of the Summary Box in 2003 was one of the most significant transparency initiatives, as it provided a standard précis of key information on the credit card product for customers. It features information on APRs, monthly interest rates, the length of the interestfree period, how payments are allocated and what the minimum repayment is. While this information has always featured in the terms and conditions of the card, displaying it in a standard format on any marketing materials, as well as on credit card statements, has made it easier for customers to make fully informed choices and to compare between the features and benefits of different credit and charge cards. This commitment complemented the earlier inclusion on the statement of an estimated interest amount (assuming only the minimum repayment is made by the due date) as well as a move to inform customers in advance of the expiry of any promotional interest rates. Another initiative was the introduction of a new minimum repayment health warning on all credit card statements in This was introduced by issuers to ensure that customers were better informed about the consequences of making only the minimum payment. Good data sharing is at the heart of an issuer s ability to lend responsibly saw an important milestone in the sharing of positive data for all credit cards by all issuers (where legally able to do so). Then in 2008, the industry began sharing deeper additional data based on how customers use their credit cards, such as whether they are frequently used to take out cash and how often the customer chooses to pay just the minimum payment. This allows lenders to pinpoint customers who may be at risk of financial difficulties, enabling them to provide help in line with Lending Code commitments. The credit industry also continues to lobby Government to share other potentially useful data, such as student loans and council tax arrears. In November 2008 the Government called a credit card summit, where agreement was reached on a set of principles covering changes to interest rates and the provision of a breathing space from debt collection activities for customers in discussion with a debt advice agency. Subsequently, following the publication of a Consumer White Paper in July 2009, the Department for Business, Innovation & Skills (BIS) launched the Credit & Store Card Review. The industry provided evidence including analysis of some 44 million credit card accounts, an economic impact assessment and detailed consumer research. Page 17

20 As a result, the Government and the industry agreed on a range of commitments to give customers more control over their finances. The main changes, which have been in force since the start of 2011, mean repayments are now always allocated to the most expensive debt first (reversing the previous practice); at least one per cent of the outstanding balance is paid when a new customer makes a minimum payment; cardholders have more choice and control over credit limit increases and receive clearer communications if their interest is to be increased. Cardholders also now have greater flexibility to choose the amount they pay towards their credit card bill and the methods used for making regular payments. From the end of 2011 credit card holders will start to receive an annual credit card statement summarising their previous twelve months card usage. Page 18

21 8. Credit card borrowing Although consumer credit expanded strongly in the secured loans market in the first part of the decade as the mortgage and housing market boomed, consumers reined in their credit card use well before the credit crunch hit. The annual growth in net credit card lending (the amount borrowed minus the amount repaid) was above 20% for almost two full years between 2003 and The 36 months from the start of 2003 until the end of 2005 saw consumers add 25 billion to their credit card borrowings, before debt outstanding on credit cards peaked in February 2006 at 69 billion. At current rates of growth student loan debt is likely to overtake credit card debt within three years. The total amount of consumer borrowing outstanding at the end of 2010 was 1.45 trillion of which mortgage lending accounted for 85%. The remaining 15% was unsecured lending, made up of credit cards (4%) and other consumer credit such as personal loans and store cards (11%). Chart 13. Unsecured lending to individuals, ( billion) The credit card industry has moved a long way during the past five years to ensure it is lending responsibly to the right customers. As a consequence many people are less indebted than in the past. Card issuance to more vulnerable groups and their credit limits have been restricted, and it is in fact wealthier cardholders who are able to sustain their spending on credit cards and who represent a greater share of the market. Page 19

22 9. Credit card repayment patterns Changing attitudes to consumer borrowing have increased the number of people repaying in full, with three in five (62%) credit and charge card holders repaying their balances in full each and every month in 2010 (up from 55% in 2005 and 54% in 2003). Figures also show that only three per cent of consumers make the minimum payment for 12 consecutive months (falling to 1.2% over 24 months), with some of those doing so for rational reasons e.g. a low interest promotional deal, or to prioritise paying more expensive debt elsewhere. Chart 14. Number of adults using credit cards as a form of borrowing each month Many commentators have postulated that the credit crunch and subsequent recession have forced consumers to rely more heavily on their credit cards. However the fall in credit card borrowing and changes in repayment behaviour dispel this myth. The repayment ratio (the amount spent each month that is repaid in that month) has risen significantly over the last few years, in line with this falling borrowing trend. From a low of 92.8% in 2003, it had reached an average of 98.4% in 2010, and in a number of months exceeded 100%. With credit card issuers stricter lending criteria, simply refinancing at a low interest rate with a rival card issuer through a balance transfer was no longer an easy option for many borrowers. The squeeze on living standards caused by the recession hasn t forced people to rely on their cards to sustain spending. In fact repayments have risen and spending has remained flat. Page 20

23 Chart 15. Credit card repayment ratio Page 21

24 10. Taking cash out on cards The number of cash machines in the UK has almost doubled over the past decade from 33,000 in 2000 to just over 63,000 at the end of This growth has been matched by an increase in the number of people who regularly use their debit cards to withdraw cash from a machine. There were 38 million regular users of cash machines in 2010, up from 30 million in Regular ATM users took out an average of 200 a fortnight in 2010 and also used cash machines for a lot more besides. It s now possible to use an ATM to print a mini-statement, change your PIN, top up your mobile or even make a donation to charity on some machines. Cash acquisition on credit and charge cards in the UK has more than halved since the peak in 2005 when 9.2 billion of cash was taken out. In 2010, this had fallen to 3.8 billion, and ended the decade 2.5 billion lower than it started. Price conscious consumers have increasingly recognised the relatively high cost of credit card cash. Conversely, since the start of the decade, debit card cash withdrawals have more than doubled in value to 172 billion, dwarfing the amount taken out on credit and charge cards. Chart 16. Cash acquired on credit cards Page 22

25 11. The rise and demise of the credit card cheque Credit card cheques were introduced in the 1990s to enable cardholders to make balance transfers to other credit cards and to make payments to retailers who didn t have facilities to process plastic card transactions (e.g. individuals or small traders). As such they provided flexibility to users who may have to make a large payment to a tradesman and need to spread the repayment. At their peak in 2006, 327 million of these cheques were sent to cardholders. However, the proportion actually used by customers was very small. In 2009 just 0.9% were used, to a value of 2 billion. The unsolicited nature of credit card cheques proved unpopular with Government and consumer groups who called for a ban. In response, the industry implemented a voluntary cessation from the beginning of 2011, which is enshrined in the Lending Code. Customers can still request credit card cheques, subject to certain restrictions, but figures show they are now rarely used. Chart 17. Distribution and use of credit card cheques Page 23

26 12. Card crime the advent of chip & PIN and an industry funded police unit In 2000 card fraud was increasing year-on-year, particularly because prior to chip & PIN s introduction, fraudsters only needed to forge a signature or copy a magnetic stripe to go shopping with someone else s card. Chip & PIN started to be rolled out here in 2003; the UK was the first country to upgrade to the new global standard (called EMV) and it has greatly helped to protect our cards. The compulsory use of a PIN, introduced in early 2006 to prevent stolen cards from being used in shops, helped extend the decline in fraud on stolen cards which had peaked in 2004 at 114 million. Since 2004 the number of fraud cases has fallen 30% from 4.3 million to 3 million in 2010 and the average loss per case fell 45% from 696 to 381. Another reason for the introduction of chip & PIN was to make it much more difficult for fraudsters to produce counterfeit cards, using compromised details from the magnetic stripe of a genuine card. As a result, losses from counterfeit cards in the UK decreased by 63% from 2006 to 2010 and the increasing roll-out of chip & PIN overseas is helping to drive down losses abroad too. Counterfeit cards were used to commit 30.8 million of fraud outside the UK in 2010 less than a quarter of the peak value in 2008 ( 134 million). Chart 18. Fraud losses on UK plastic cards Page 24

27 Total fraud losses on UK cards fell to 365 million in 2010 a 17% fall compared to 2009, and 40% lower than the 2008 peak. Fraud fell in all categories in 2010 and total losses are at their lowest level since 2000 ( 317 million). Bearing in mind that the value of retail and services spending on cards rose 150% from 2000 to 2010, this shows huge strides have been made to control criminal activity. The banking industry has invested heavily to deter, detect and prosecute fraudsters, raising awareness amongst cardholders on how to protect themselves from fraud and advising retailers how to protect their chip & PIN equipment from criminal attack. The decade also saw a drive to encourage cardholders and retailers to sign-up for online fraud prevention initiatives such as MasterCard SecureCode and Verified by Visa, greater use of fraud detection tools by banks and retailers, chip & PIN rolled out in more countries around the world and an upgrade of chips on UK cards. The Dedicated Cheque and Plastic Crime Unit (DCPCU), a specialist police squad sponsored by the banking industry, brought a new focus to the growing problem of card fraud. Formed in 2002 to tackle the organised gangs behind cheque and card fraud, since its inception the DCPCU has saved an estimated 370 million of fraud losses. Intelligence sharing has also played a vital role in helping to combat fraud. Since 2008 the Fraud Intelligence Sharing System (FISS) has been in place, which enables the banking industry to share information on all confirmed, attempted and suspected fraud in a central, shared database. FISS provides the industry with a secure and robust reporting mechanism, in support of a long-term fraud prevention strategy. Chart 19. Total fraud losses on UK issued cards Page 25

28 13. Cards - the future Expansion of the debit card market is likely to continue in the short to medium term as the economy recovers, high street spending picks up and migration from other payment methods such as cash and cheques continues. Debit card use online is expected to grow, as e-commerce continues to expand and cardholder trust in the method grows with safety features such as MasterCard SecureCode and Verified by Visa. Greater account holding and debit card provision on basic bank accounts and by credit unions will also drive up holding and use of debit cards, as will their increasing acceptance for purposes such as credit card bill payment. Growth in unattended retail terminals in supermarkets, chemists and petrol stations will also boost card use and debit cards are likely to benefit significantly from contactless payments, as their popularity for lower value everyday payments carries on increasing. The pace of change is picking up in the contactless card market, with both issuance and acceptance likely to increase significantly in coming months. Large scale projects such as the acceptance of contactless bank cards on TfL s network and acceptance by major supermarkets and other retailers will act as tipping points for the market. McDonald s decision to accept contactless payments illustrates this point. The recent increase in the value threshold for contactless payments to 15 will also improve the business case for certain types of retailers. The number of debit card payments is expected to double by 2020, reaching 12.8 billion, with a big increase in spending also projected, growing from 292 billion in 2010 to 616 billion by Debit cards will account for 62% of the projected increase in electronic transaction volumes over the next ten years. Meanwhile, the shrinking of the credit card market should not be viewed as a long-term decline like cheques, but more of a levelling-off. The role that the credit card played at the start of the decade was massively influenced by factors such as the advent of the internet and consumers appetite for borrowing. As consumers have become more aware of the full range of payment options, we have seen credit card usage stabilise. Credit and charge cards have a clear place in our wallets, fulfilling functions which other means of payment cannot. The market also remains extremely competitive and there a lots of different cards and deals for customers to choose from. Satisfaction levels with credit cards among consumers are very high 93% expressed no dissatisfaction at all in People most value the ease of use offered by credit cards and the reassurance and flexibility of a spending safety net that allows purchases to be made while simultaneously managing cash flow. With the settlement of accounts monthly, payments can be matched to when salaries come in, or spread if income is irregular (as with the self-employed). Credit cards also allow people to make big purchases that would be harder to make if payments could not be spread Page 26

29 out, from luxuries such as a holiday to essentials like a new washing machine. Card security and consumer protection features are very important to consumers, particularly with the growth of online retail. The added protection makes the card issuer liable along with a retailer for faulty, mis-described, or undelivered goods. In addition to all of this, the growth of rewards programmes has been very popular. With the credit bubble behind us, consumer borrowing looks unlikely to scale the same heights as in the mid 2000s. Demand for unsecured credit is lower as consumers seek not to repeat the difficulties of dealing with an overhang of debt, and supply of finance will be constrained by new regulations on lending. Furthermore, for a time, credit cards were the main option consumers had for electronic payments. This meant they were often used for transactions for which they were less suited (as they were the only alternative to cash and cheques) such as buying food, petrol, or small items. Newer payment options, especially debit cards and Faster Payments, mean everyone can now make day-to-day payments quickly and easily. By 2020, we expect UK credit and charge card volumes to reach almost three billion, with total spending of 194 billion in that year, up from two billion with a value of 136 billion in We expect the number of cards held to grow slowly again through 2011, reaching 33 million in 2019, but the increases forecast will fall fractionally behind the growth in the adult population. Regulatory changes will, however, be a major influence on our forecasts. For example, if credit card issuers needed to reintroduce annual fees to recover costs and lost revenue caused by regulatory intervention, this could impact the holding and use of credit cards. Growth looks set to resume, but it is likely to be slower in future. Future technology The widespread use of near field communication (NFC) technology in mobile phones will allow contactless card payments to be made using just a handset, rather than with a plastic card itself. We are likely to see individual card issuers partnering with mobile network operators to provide phone applications that will mirror existing contactless cards, as well as many more retailers installing contactless readers in their stores. Cardholders will be able to make payments for low value purchases (under 15, with the possibility of it rising in the future) by simply tapping their phone against any contactless card reader. Industry experts predict that in the near future the need for a physical card will diminish and mobile phones will replace the wallet. This will mean that instead of carrying around debit and credit cards in our wallet, we will be able to use our mobile to make a purchase, selecting interchangeably between spending on either our debit or credit account. Page 27

30 Key milestones for cards June: Barclays issues the UK s first credit card 1972 Joint Credit Card Company launched, issuing Access credit cards for banks including Lloyds, Midland, National Westminster and Williams & Glyn s July: The Consumer Credit Act 1974 comes into force. Section 75 provides protection to consumers buying goods costing between 30 and 10,000 (later increased to 100 and 30,000) on their credit card 1980s Magnetic stripes added to cards and electronic point-of-sale terminals introduced in retailers June: Barclays launch the UK s first debit card under the Connect brand 1989 Lloyds Bank is the first to introduce an annual card fee ( 12) 1990s Cards industry agrees to waive interchange fees for all cross-charity and disaster or emergency appeals 1990 Cashback is introduced as a method of acquiring cash, with seven million transactions made in the first year 1992 The first Banking Code is introduced, setting out rights and the obligations of lenders 1994 Half of UK adults hold a debit card 1995 UK debit card volumes exceed credit card volumes for the first time 1999 Half of all UK adults hold a credit card. The average value of a credit card purchase exceeds 50 for the first time 1999 Annual fees disappear, extras such as travel insurance and loyalty schemes begin to be offered to attract customers, who are beginning to hold more than one card each 2000s Aggressive pricing (e.g. zero/low interest rate offers) positions credit cards as a cheaper form of personal short-term borrowing than loans 2001 Debit card expenditure exceeds credit card expenditure for the first time 2002 Dedicated Cheque & Plastic Crime Unit the industry funded police unit is launched 2003 The Summary Box is introduced on marketing materials and credit card statements, giving customers an easy way to understand and compare credit cards 2003 The move to chip & PIN is announced the biggest change to consumer payment behaviour since decimalisation 2004 Plastic card expenditure exceeds cash spending for the first time Page 28

31 2004 Card companies begin rolling out chip & PIN cards across the UK 2005 Retail spending on debit cards reaches 89 billion; beating cash for the first time 2005 The number of credit cards in issue reaches a peak of 69.9 million, before starting to gradually fall year-on-year 2005 Improved transparency on charging at ATMs, so that customers can make informed decisions before withdrawing money 2005 Minimum repayment health warning and debt advice appears on credit card statements 2006 Consumer Credit Act 2006 passed by Parliament (key provisions come into force in 2008) February: Chip & PIN becomes the standard at point-of-sale as signing for card purchases is turned off June: Office of Fair Trading (OFT) action effectively caps credit card default fees at September: Launch of contactless card payments on debit and credit cards in London 2008 The House of Lords rules that Section 75 protection applies to credit card purchases made abroad as well as in the UK 2008 November: The Credit Card Summit results in new cardholder options if a product is re-priced and the provision of a breathing space from debt collection activities, if a cardholder is in discussion with a debt advice agency December: Behavioural Data Sharing a significant enhancement to the amount of detail shared about cardholders use of credit cards goes live 2009 Card fraud falls by 28%, the first major reduction since The Lending Code replaces the former Banking Code, focusing on lenders responsibilities to cardholders 2010 Card fraud falls a further 17% and is back at levels last seen around Debit cards overtake cash as the nation s favourite way to pay for the first time 2010/11 Government consults the cards industry on rate capping of credit cards 2011 January: Changes agreed with the Government come into force, changing the way credit card repayments are allocated, how the minimum repayment is calculated, and how changes to credit limits and re-pricing work. Page 29

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