Wednesday, January 26, 2011

Economic Uncertainty is Changing 30 Years of Spending Habits - UK Consumers Begin to Rely Less on Credit Cards, says Auriemma Consulting Group

Consumers in the UK are consciously choosing to use debit cards (and other forms of payment) instead of credit cards for day-to-day purchases. This is being driven as a direct result of economic uncertainty, according to data recently published in Cardbeat®, a market research report published by Auriemma Consulting Group (ACG).

In this study, credit card users were asked to predict how changes in the economic environment would impact their use of credit cards. If the economy improves, 26% of credit card users reported that they would decrease their usage of credit cards. The percentage of credit card users planning to decrease their usage of credit cards rises to 39% if the economy declines. These findings suggest a continuation of the trend that has seen the percentage of purchases made with credit cards decline from 31% in Q3 2009 to 25% in Q3 2010 (debit cards and direct debit transactions increased from 33% to 38% over the same time period), a surprising result indicating that, regardless of the economic situation, consumers intend to move further away from credit cards.

While this trend of decreasing credit card usage has been ongoing for several years, analysts have presumed that this was due to consumers’ desire to be more fiscally conservative in the wake of changes to key economic drivers like rising unemployment, falling house prices and rising inflation. The consensus was that when the economy improves and consumers regain confidence, the appetite to borrow money would grow and consumers would return to use credit cards as before.

Megan Bramlette, director of knowledge management at ACG, says: “Consumers today are seeking control of their finances and have become financially conservative. We believe that this shift in behaviour is a true social change – one that will permeate society long after our economy recovers.” Bramlette goes on to say, “The results of this study indicate this thriftiness will result in consumers ceasing to use their credit cards. As a result, consumer usage of debit cards is likely to grow in terms of market share and volume for the next 2-3 years unless credit card issuers begin offering very compelling products to their customers in an effort to recruit them back from debit card usage.”

Matt Simester, Managing Director of ACG adds that, “There is a window of opportunity for credit card issuers to remind card users of the fundamental benefits of using credit cards and to build products that reflect the need for financial conservativeness. While I expect card usage in the premium credit card market to be maintained because of strong reward programmes, issuers need to invest in solid value for money propositions and educate the consumers about the benefits of credit cards.”

About the Auriemma Consulting Group

Since 1984, ACG has offered comprehensive management consulting, research, industry roundtable and benchmarking services to the financial services industry. ACG clients include credit card issuers and networks, commercial banks, auto and mortgage lenders, merchants, and industry vendors. With offices in London and New York, ACG offers actionable solutions to help clients make important business decisions to maximise their efficiencies and revenues.

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