Our latest UK Credit Market Report on card trends for April 2021 shows the impact of the opening up of hospitality and retail on April 12. The figures include a 12 percent rise in card spend and more customers exceeding their card limit. Missed payments were still below historical trends, probably due to increased savings and government support, which continues to blur the picture of card users struggling with debt issues, making it more difficult for lenders to manage.
Whilst year-on-year comparisons must be taken in context as April 2020 was the first full lockdown month, April 2021 is the first month showing partial non-lockdown data since December, with some signs of stress relating to spend above limit and cash usage as well as higher average balances on accounts missing payments. With further spend expected in the coming months, the financial sector may start to get a better idea of the ability of card users to maintain their debt.
Spend on UK cards continued to increase, along with the percentage of payments
The average spend on UK credit cards increased for the second consecutive month, by £65 to £625 in April 2021. This is the largest monthly increase in spend for over two years. As April 2020 was a lockdown month, it is not surprising to see sales are 22 percent higher year on year. April 2021 saw a rise of 9 percent in retail sales, with clothes purchases up 70 percent over March 2021.
The percentage of payments to balance increased for the first time since December, by 3 percent. This time last year a drop in payments was reported, as the initial impact of the pandemic hit consumers before the government financial support was introduced.
Payments to balance are now 6 percent higher than a year ago. Average card balances, although increasing month on month, are 10 percent lower than a year ago.
April 2021 saw a shift in the way consumers pay their credit card debt, with a move to paying the minimum or full balance. This highlights the difference the pandemic has had on cardholders, with the gap widening between those who have increased their savings and can afford to pay off their full balance versus those who, perhaps even with support, can only afford to pay the minimum. Issuers could open communication with those customers whose payments to balance are decreasing, especially if they are still spending, as this could be a clear indication of a deterioration in financial stability.
In the four months to April 2020, 27 percent fewer accounts paid the minimum amount as the majority shifted to paying less. In the same period this year, the proportion paying the minimum has increased by 20 percent, which will increase the volumes qualifying for persistent debt treatment.
With further sectors opening in May and foreign travel allowed to a small number of countries, spend is expected to continue to rise. The uncertainty remains around repayment, as predictions are that a record number of UK businesses could fail, with the small business sector impacted the most, which could impact unemployment rates.
Missed payment rates remain low
April 2021 shows month-on-month improvements in the percentage of accounts missing payments and their associated percent of balance to total balance. Until the furlough support is removed, this trend may continue, as the combination of these payments and the extra savings influence consumer behaviour. Comparing results to this time last year also looks favourable, but this needs to be put into context as April 2020 saw the peak in missed payments, as it preceded government support options.
Average balances on accounts missing one payment increased £26 month on month, although it is 13 percent lower than a year ago. For accounts missing two payments, the average balances are £126 or 5 percent higher than April 2020. Average balances on accounts with three missed payments are £272 higher (10 percent) and four missed payments plus are £315 higher (11 percent), reaching another over two-year high.
Card limits remain steady, but the percentage of accounts exceeding their limit increases for the first time since December 2019
Average card limits increased £4 in April, influenced by accounts opened one or more years. Limits are £37 lower than April 2020. Limits on accounts opened less than a year have fallen £224 since December.
The highest proportion of accounts — 29 percent — remain in the limit range of £5,001 to £10,000, with an average balance of £1,148, the first monthly increase since December. 10 percent of credit cards have a limit greater than £10,000 and their average balance is just £2,201, again experiencing the first increase since December.
The percentage of accounts going over their limit had been decreasing since January 2020, with the pandemic accelerating the downwards trend. However, April 2021 has seen the first increase, in conjunction with the easing of lockdown rules, since December 2019. The fact that some consumers are finding the need to spend above their agreed limit, and incur the associated fees and thereby increasing their balance further, is a concern.
Due to the lower volumes in collections as fewer accounts are missing payments, issuers have an opportunity to address the higher risk accounts in this category, to help prevent them moving to a missed payment state. If these consumers are also shifting to paying the minimum amount due, this will also boost volumes qualifying for persistent debt actions.
Cash usage increases for first time since September 2020
The percentage of consumers using cash on their credit cards increased for the first time since September 2020, albeit only marginally. The opening of some sectors has influenced this, although it remains 52 percent lower year-on-year. However, cash as a percentage of total spend decreased for the first time since December, which implies that more consumers are using cash but in lower amounts. This is another segment of customers that issuers could concentrate on, as this could be an indicator of financial problems, especially if combined with exceeding the limit.
May data will show a full month of lockdown easing, with even further spending options becoming available and impacting the trends. Issuers will need to be agile in their reaction to customers’ behaviour and will need to adapt their strategies, interaction and treatment accordingly, potentially at short notice, always ensuring that the customer experiences consistent treatment throughout.
Questions that should be asked now include:
- Is our collections department prepared for the potential increase in volumes, including having a range of options to offer?
- Do we have a robust persistent debt process?
- Can we act quickly to changing circumstances without negatively impacting the customer experience?
- How can we best identify those showing signs of financial stress currently or in the future?
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 me at staceywest@fico.com.
