Consumers in the United Kingdom are using credit cards less to avoid debt, but issuers still have opportunities to increase card use by better conveying the benefits and value credit cards offer, new research suggests.
They face an uphill battle, however, as the UK always has been a debit-centric market, and there are few signs that will change, notes Megan Bramlette, group director at Auriemma Consulting Group Inc. The New York-based company conducted the research through an online survey of 510 UK-based credit and debit cardholders in September.
Despite some predictions that the economy soon will recover, “it is a real social trend that consumers are debt-adverse, even in a scenario where things are better,” Bramlette says. Consumers still plan to watch their spending and cut back, she adds.
Auriemma’s survey found that 55% of respondents plan to protect themselves from financial risk by reducing spending, while 45% said they still planned to continue to save money over the next year even if the economy improves.
And because consumers see credit cards as vehicles for producing debt, “they are no longer enamored with using their credit cards,” Bramlette says.
Among the survey respondents, 26% said they would use their debit cards more in an improved economy, while only 10% said they would use their credit cards more often.
Moreover, 30% of respondents said they would use debit cards less if the economy worsened, while 39% said they would not use a credit card under such conditions. Only 14% said they likely would use their debit card more if the economy got worse, while 8% said they still would use a credit card despite the negative economic conditions.
Subsequently, many UK credit card issuers are concerned about their future. In the UK, the value of credit cards is “certainly different than the U.S.,” Bramlette says. But UK issuers still have an opportunity to educate consumers about the benefits and value of credit cards, she says.
Many consumers do not realize that debit cards still may incur fees, such as for overdrafts, which “can be much worse on a percentage basis than a late fee on a credit card,” Bramlette explains. Moreover, some credit cards, such as rewards-based cards, may save consumers money and generate value, she adds.
Many UK-based reward programs, however, do not always provide consumers with enough value or benefits, Bramlette says.
For example, UK-based grocery chain Tesco PLC offers consumers both a rewards-based credit card and a separate loyalty card, Bramlette says. Tesco credit cardholders earn one point per £4 spent (US$6 or 5 euros) but earn twice as many points if they use the loyalty card when grocery shopping, giving the loyalty card more value, she notes.
In terms of redemption options, Tesco credit cardholders may redeem a £5 voucher once they earn 5,000 points, which means cardholders need to spend £2,000 to receive £5, which is an earn rate of 0.25% Bramlette says.
In contrast, U.S. consumers participating in Citibank NA’s ThankYou Rewards program may earn a $50 Macy’s Inc. gift card when they earn 6,000 points or spend $6,000, Bramlette says. Therefore, the Citi program has a 0.83% earn rate, which is about 3.5 times the value of the Tesco card, she says.
UK issuers, however, believe they cannot support the U.S.-based model because it is too expensive, Bramlette says. Subsequently, a fee-based rewards program may be their best option, she contends.
What do you think about this? Send us your feedback.
