UK Cards Are Gathering Dust

Everyone knows the UK economy is recovering, and retailers had a good Christmas. However, it seems that UK consumers are being cautious when it comes to charging those cards and heeding Mark Carney's latest message that Britain's economic recovery has not yet gained enough momentum to be seen as sustainable, according to the Bank of England's latest inflation report.Our recent review of over 38 million UK credit cards showed that the percentage of active UK card accounts has dropped since November 2012, writes Daniel Melo

Everyone knows the UK economy is recovering, and retailers had a good Christmas. However, it seems that UK consumers are being cautious when it comes to charging those cards and heeding Mark Carney’s latest message that Britain’s economic recovery has not yet gained enough momentum to be seen as sustainable, according to the Bank of England’s latest inflation report.Our recent review of over 38 million UK credit cards showed that the percentage of active UK card accounts has dropped since November 2012, writes Daniel Melo

We’ve looked at the percentage of accounts which have a balance and are therefore seen as ‘active’, and then broken that down by vintage – new (0 to 12 months old), established (1 to 5 years) and veteran (5+ years) – and the results were surprising. Overall, the percentage of ‘active’ accounts fell by more than 10%, to 47% active in November 2013:

As you might expect, the older the account, the greater likelihood of it going inactive, and we found that the sharpest decline was in veteran accounts, which fell from 50% active in November 2012 to just 43% in November 2013. On the other hand, new accounts rose by nearly 8%, to a healthy 72%. This could be due to the increase in 0% or low-rate balance transfer offers, and so it is worth keeping an eye on how they fare in the next few months.

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We could deduce that issuers should focus on new accounts, but it is less expensive to retain existing customers, so issuers may well be better off reviewing their offerings and increasing their focus on stimulating activity on more mature accounts with targeted offers. These can include temporary reductions in APR or just interest rates for merchandise spend, and balance transfers for existing customers.

When reviewing UK card-holder behaviour in 2013, we found that there was little change in the pattern of cardholders paying off their balances, with fewer than 50% of cardholders overall classed as revolvers vs. transactors:

Card issuers face a challenge in attempting to convert transactors into revolvers, and some issuers are tackling this by including profitability factors into their pricing, rather than the traditional risk measures. Issuers can also review their card reissue policy for transactors and low-interchange generators, or consider using profitability models in the application process to improve the likelihood of limits being used and/or interest paid.

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Some issuers are using more analytically sophisticated approaches, developing optimised strategies or targeting offers to customers based on their spending patterns. As issuers typically communicate offers via letter, they could extend this to include email follows up as well as using SMS, a lower-cost option. The latter also allows for real-time acceptance of offers.

Introducing learning strategies to determine what offer to make different types of account, when, and which is the best communication channel to use can increase the success of any campaign, and creating campaigns with monitoring in mind is also useful for gathering data on which to base future learning. Has your business tried out any new or high-tech methods of revitalising credit accounts?