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International markets have performed well for many U.S. credit card issuers over the past year, but the United Kingdom's card market is mired in a trough of slow growth plagued by rising bankruptcy filings.
"Everything you see happening in the U.S. with credit cards this year has already happened in the UK, from a run-up in housing prices to overuse of home-equity loans to card saturation to rising delinquencies and charge-offs," says Danny Gabay, director of Fathom Financial Consulting Ltd., a London-based economic consultancy. "Britain went on a credit binge over the last several years, and recovery is taking a long time."
A 2006 study by Datamonitor found that UK consumers had the most payment cards per person in Western Europe, and a survey released in March of this year by MoneyExpert.com, a financial comparison Web site, found that 3.2 million UK adults had five or more credit cards.
Personal bankruptcies are rising, and analysts predict that the number of individuals filing for bankruptcy in the UK will hit an all-time high of 130,000 this year.
Some card issuers have given up. Earlier this year, Discover Financial Services sold its Goldfish credit card unit in the UK to Barclays Bank plc after just two years, citing difficulties caused by the high rate of bankruptcies. And Citigroup this year was forced to cancel more than 160,000 Egg card accounts in its portfolio of 2.2 million accounts that no longer fit its risk profile.
Gabay says despite these setbacks, the UK credit card market finally may be turning a corner.
"The UK consumer has had enough; people are tapped out and looking to rebalance their finances again. The rate of growth in credit card-outstanding balances has slowed from near 30% to 0% in the last year," Gabay says. "It will be a long road, but we may be on our way to recovery in credit cards." CP
