The UK payment card market has continued to grow strongly over the last five years. However, this growth has been driven by growth in the use of debit, rather than credit, cards. At a time when the credit card market is facing pressure on each of its major sources of revenue, this is a major challenge.

This briefing examines the changing trend in the use of debit and credit cards in the UK between 2002 and 2006 The impact of this trend on credit card issuers is discussed, with particular reference to current market challenges. The way in which issuers can look to respond to this challenge is discussed in detail, focusing on three areas of product change. Repositioning the product as a lending tool, attacking debit head-on, and moving credit into other areas of the payment landscape are all considered.

UK consumers are now more likely to turn to debit than credit for day-to-day transactions. Over the period 2002-2006, the share of the total value of personal spontaneous transactions accounted for by credit and debit cards grew from 80.6% to 88.1%. However, the share of credit cards within the total has declined from 27.2% to 24.3% This substitution has seen consumers making greater use of overdrafts to finance some short-term borrowing, depriving credit card issuers of interest revenue. The slowdown in credit card transaction values from 2004 onwards has been accompanied by strong growth in overdraft borrowing. There are three areas of strategic response for issuers: attacking debit directly, re-positioning the card for lending, and targeting new areas of payments. Each offers significant opportunities and a clear path for exploitation. There are, for example up to £92 billion of untapped gross advances in the consumer credit market.