Credit cardholders in the United Kingdom generally are uninspired by balance-transfer offers trying to lure them into obtaining new cards, instead preferring security and rewards pitches, the results of a recent cards industry study suggest.
Yet, only 8% of respondents to an online Auriemma Consulting Group Cardbeat survey of 507 cardholders conducted in the second quarter indicated the latest offers encouraging them to acquire a new card carried any value, even though card issuers are making balance-transfer offers more appealing than in the past.
“Ultimately, the consumer in the UK is seeking value, not necessarily seeking balance transfers. And that has not changed much over the last two years,” Megan Bramlette, Auriemma director of international knowledge management, tells PaymentsSource.
But UK cardholders are seeing favorable offers with low interest rates because of market competition, Bramlette says.
Card issuers are trying to “one-up each other” with the number of months of low interest in a card promotion, and the research study tried to pinpoint what role the balance transfers play in the consumer’s decision to acquire a new card, Bramlette adds.
Issuers can offer various programs that tie in with balance transfers, such as consolidated loans, which UK cardholders are not always familiar with, previous Auriemma studies have shown (
The favorable offers for balance transfers target low-risk consumers because risk managers are not interested in “opening the floodgates again” with cardholders who default on payments, Bramlette says.
“People with the highest credit quality are the only ones eligible for these offers because the risk managers know what happened when the recession hit,” she says.
Balance-transfer promotions attract borrowers but have no meaning to those who use credit cards to purchase products and pay for them right away, the survey data show.
In Europe, credit cardholders generally save for a product and then buy it. In the United States, the tendency is to use the credit card as an advance on money the consumer does not currently have, Bramlette explains.
Instead of being lured to a new card with offers to help transfer balances from other cards, respondents indicated earning rewards, purchasing products online securely, and trusting the bank because of a favorable image and reputation were more important factors when deciding to take on a new card.
The survey also revealed a growing trend in cardholders not using all of their cards, as dormancy rose to 28% in the second quarter, reaching a level not seen since 2007, when ranges were 28% to 33%.
“The dormancy relates to cardholders saying they have at least one card that is not being used,” Bramlette says. “This number is gradually increasing because we believe people in the UK are using their cards as a safety net when cash flow is a problem, not for making big purchases.”
In another indication that risk management is at the forefront for issuers, the report reveals credit lines fell 24% since the pre-recession period, averaging £4,100 ($6,643 U.S.) compared with £5,400 in 2008.
Average credit lines fell for nine consecutive quarters before stabilizing in mid-2010 at approximately £4,700, the report states.
“Consumers just don’t need as much credit as they used to, because they are not using it,” Bramlette contends.
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