FICO UK Credit Card Market Report: December 2023

Rhea-AI Summary

The FICO UK Credit Card Market Report for December 2023 reveals the highest average credit card spend and balances since 2006. Average spend increased by 5.9% to £850, while average balances rose by 2.2% month-on-month and 7.2% year-on-year, reaching £1,780. However, 14.8% more customers missed a payment compared to the previous month, with a 1.3% decrease in average balance for those missing one payment.

Insights

Financial Analyst

The reported increase in average credit card spend and balances in the UK is indicative of consumer behavior that has significant implications for the financial sector. The rise in average balances to £1,780, a 7.2% year-on-year increase, suggests that consumers are taking on more debt, potentially due to the high cost of living. As balances grow, there is a heightened risk of default, particularly if this trend continues alongside a high inflation environment. This could lead to an uptick in provisions for credit losses among lenders, affecting their profitability.

Moreover, the 14.8% month-on-month spike in accounts with one missed payment is a red flag for credit risk. Lenders may need to tighten credit scoring criteria and reassess risk exposure to mitigate potential losses. The payment-to-balance ratio's decline since July also indicates that consumers are paying off a smaller proportion of their debt, which could lead to higher interest income for issuers in the short term but may increase the risk of defaults in the long term.

Market Research Analyst

The consumer credit data released by FICO highlights a shift in the spending habits and financial health of UK cardholders. The seasonal uptick in spending is expected, but the year-on-year increase points to a deeper trend of reliance on credit amidst high prices. The data suggests that consumers are stretching their budgets to cope with inflationary pressures, which could impact consumer confidence and spending patterns in the future.

For businesses, especially retailers, this could mean a short-term increase in sales but a potential long-term risk if consumers need to cut back on spending to manage their debt. The retail sector might see a shift in the types of products purchased on credit, with essentials taking precedence over luxury goods. Additionally, the increase in missed payments could signal a forthcoming reduction in discretionary spending as consumers prioritize debt management.

Consumer Behavior Specialist

The data indicates a broader economic stress on consumers, as evidenced by the record-high credit card balances and the increase in missed payments. The trend of consumers missing payments, especially after the expiration of 0% offers, reveals vulnerabilities in the financial resilience of UK households. This trend could lead to a shift in consumer behavior, with a potential increase in demand for credit counseling services and financial planning tools.

Businesses that offer financial services may need to focus on providing solutions for debt management and consolidation to cater to the growing market of consumers looking to manage their credit more effectively. There is also an opportunity for financial education initiatives to help consumers better understand and manage their credit utilization and repayment strategies.

High prices lead to highest average credit card spend and balances since FICO records began

LONDON--(BUSINESS WIRE)-- The FICO UK Credit Card Market Report for December 2023 reflects the usual season trends in spending and payments. However, it also reflects the impact of continued high prices on card balances. This latest report shows the highest levels of both average spend and average balances since 2006, when FICO first analysed credit card use and payments.

The latest FICO UK Credit Report shows the highest levels of both average spend and average balances on UK credit cards since 2006, when FICO first analysed credit card use and payments. (Graphic: Business Wire)

Highlights

• Average spend increased by 5.9% on the previous month, to £850
• Average balances rose by 2.2% month-on-month and 7.2% year-on-year, leading to an average balance of £1,780
• 14.8% more customers missed a credit card payment month-on-month and 0.5% more compared to the same month in 2022
• There has been a 1.3% decrease in the average balance for those customers missing one payment

Key Trend Indicators – UK Cards December 2023

Metric	Amount	Month-on-Month Change	Year-on-Year Change
Average UK Credit Card Spend	£850	+5.9%	+2.9%
Average Card Balance	£1,780	+2.2%	+7.2%
Percentage of Payments to Balance	36.6%	-0.2%	-4.9%
Accounts with One Missed Payment	1.7%	+14.8%	+0.5%
Accounts with Two Missed Payments	0.3%	+0.9%	+1.9%
Accounts with Three Missed Payments	0.7%	+7.7%	+5%
Average Credit Limit	£5,615	+0.1%	+0.8%
Average Overlimit Spend	£90	0%	-4.4%
Cash Sales / Total Sales	0.8%	-10.2%	+0.7%

Source: FICO

FICO Comment

Increases in spend always occur in December, and 2023 was no exception with a 5.9% month-on-month rise, taking the average spend to £850. This is the highest spend since FICO records began in 2006.

The average balance continued to trend upwards, as expected in the lead up to Christmas. December 2022 saw record average balances. In December 2023 that record was broken with average balances up 2.2% month-on-month and up 7.2% year-on-year. The average balance now stands at £1,780. It is anticipated that this trend will fall post-Christmas, however with prices remaining high lenders will want to monitor closely how much it will fall, and for how long it will remain lower.

Another pattern typical of December was the amount paid off credit card balances as shoppers focussed their cashflow on Christmas spending. In December 2023 the average balance paid off dropped slightly, by 0.16%, month-on-month. However, this measure has been trending down since July.

Pre-COVID, the average payment compared to the overall balance was approximately 30%, but with lockdown and increased savings this rose to 42%. The FICO data now shows this dropping back, although it is currently still 6% higher than before the pandemic.

Another sign of pressure on finances was the number of customers missing one, two and three payments. This increased from November to December 2023, with the largest increase seen for those missing one payment: a 14.8% increase month-on-month and a 0.5% increase compared to 2022. Again, seasonality influences results with similar volumes expected in January as a result of the post-Christmas spending hangover. Lenders will also want to be mindful that higher numbers of customers missing one payment in December are likely to roll over into two payments in January.

Issuers should note that established customers – those who have had their credit card between one and five years – are the most likely to miss payments. This group contains customers whose 0% offers have expired, and they are now paying off balances at the standard rate. FICO recommends monitoring this group for signs of vulnerability and indebtedness. Now is a great time to review existing collections strategies and examine whether anything more can be done to proactively identify and assist financially distressed customers.

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% of UK card issuers. For more information on these trends, contact FICO.

About FICO

FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, insurance, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 2.6 billion payment cards from fraud, to improving financial inclusion, to increasing supply chain resiliency. The FICO® Score, used by 90% of top US lenders, is the standard measure of consumer credit risk in the US and other countries, improving risk management, credit access and transparency. Learn more at www.fico.com.

FICO and TRIAD are registered trademarks of Fair Isaac Corporation in the U.S. and other countries.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240222259009/en/

For further comment on the FICO UK Credit Card activity contact:

FICO UK PR Team

Wendy Harrison/Parm Heer

ficoteam@harrisonsadler.com

0208 977 9132

Source: FICO

FAQ

What is the average UK credit card spend according to the FICO UK Credit Card Market Report for December 2023?

The average UK credit card spend according to the report is £850, reflecting a 5.9% increase from the previous month.

What is the average card balance mentioned in the FICO UK Credit Card Market Report for December 2023?

The average card balance highlighted in the report is £1,780, showing a 2.2% month-on-month and 7.2% year-on-year increase.

How many customers missed a credit card payment in December 2023 compared to the previous month?

In December 2023, 14.8% more customers missed a credit card payment compared to the previous month.

What is the percentage change in average balance for customers missing one payment according to the report?

The report indicates a 1.3% decrease in the average balance for customers missing one payment.

What is the source of the data provided in the FICO UK Credit Card Market Report for December 2023?

The data in the report is sourced from FICO, a renowned analytics company specializing in credit scoring and financial services.