FICO’s analysis of Card Market UK trends in the summer of 2022 (June-August) provides a clear image of a skewed consumer behavior that is difficult for banks to control when the cost of living crisis is gaining momentum.
Highlights
- The average total sales were PS790 in July and June as well as PS810 in August. This is over 14 percent rise over the previous three months
- The rise of the balance of accounts with just one and two missed payments remained during June and July but it began to level out in August. This will remain a red flag for lenders.
- Credit card sales for cash were up 6.7 percentage in the month of June, and 3.4 percentage in July. This is an additional worrying sign for lenders
FICO comments
The analysis of the largest group of UK credit cards shows the percentage of customers using credit cards to cash out gradually increasing over three months. This is a clear indication of financial strain as the interest rate charged on cash withdrawals on credit cards is always higher than regular purchases.
Average sales on credit cards increased throughout the summer. According to reports in the media, consumers have cut back on spending to cope with the price of living crisis The increase in spending on credit cards highlights the growing dependence on credit, rather than savings or disposable income. The average balance of active credit cards has reached the highest level in more than two years.
The ratio of balances to payments is a reflection of the inconsistent pattern that was evident in the early years. In June, it decreased by 3 percent month-on- and in July it grew by 1.7 percent. Then in August, it fell by 1.8 percent.
The proportion of payments that are not made can also cause confusion for lenders. In June, cardholders who missed one payment was almost non-existent and in July, the number rose by 2.2 percent and dropped in August by 4.6 percent compared to the prior month. However, the proportion of people who are unable to make more than three transactions rose significantly in August when compared with July, increasing by 8.5 per cent and 9.3 percent, respectively.
It is possible that cardholders who fail to make more than one payment might not have enough money to catch up and may be facing debt problems. There is evidence that the proportion of cardholders who spend more than their credit limit is slowly increasing since March. This could also be a sign that certain cardholders are in debt.
They can also use segmentation analysis of their accounts to be sure their website and mobile applications encourage users in need to reach out immediately upon a sign of trouble, and to think about creating special payment plans for those who struggle to keep up.
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