The cards are alright… for now, with Liz Ruddick
Liz Ruddick is the author of the UK Cards Report, FICO’s go-to resources for anyone working in the UK card industry. This means Liz is perfectly placed to put the latest card trends in perspective, and it’s another case of ‘it could be worse’.
The cost of living is rising around the world, so things may yet turn bad, but for now, consumers are spending relatively well and reigning in their balances. But… “lenders will need to be vigilant to any further increases in missed payments in the coming months and ensure that they are offering support to customers where it’s needed”.
Join us to find out more about these trends – and now covering the US and Canadian markets, too.
You can find Liz Ruddick on LinkedIn and her report on the UK card market in more detail at https://www.fico.com/blogs/uk-cards-trends-good-performance-despite-rising-living-costs
While you can of course learn more about FICO and their product/ services by visiting their home page at https://www.fico.com/
You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), while you can find my action-adventure novels on Amazon, some versions even for free.
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Regards,
Brendan
The full written transcript, with timestamps, is below:
Liz Ruddick 0:00
So card balances and spend, they have decreased since December, the spend on credit cards in January was £669 - so it's a 12% drop after peaking during Christmas. But again, if I looked at 12 months previously, it's also 17% higher than it was in January '20. So the confidence I've been talking about in my market reports the last few months, it's still there, we're still seeing it in the customer spend - customer spend's continuing to increase and since the third lockdown, we've definitely seen strong growth.
We've seen similar peaks and troughs in the US and the Canadian spend trends as well.
Brendan Le Grange 0:38
I assume it's fair to say that these are not the best of times for consumers. Fuel prices are rising at rates more recently associated with new COVID cases, inflation is a global problem likely to be fought with rising interest rates, and there are many consumers who really needed that V-shaped pandemic recovery we were once promised... welcome to How to Lend Money to Strangers with Brendan le Grange.
When looking forward we might allow ourselves to be distracted by the shiny and new and innovative, but when we want to know how consumers are doing today, it's worth remembering that there are still more than 60 million credit cards in the UK and that those represent a significant pool of data. It's a pool of data that few can tap with as much nuance as FICO whose systems provide the infrastructure or many of the largest card issuers. So in this episode, I speak to Liz Ruddick, principal consultant within the credit lifecycle practice of FICO Advisors and author of the UK Cards Trends Report, which - for January '22 at least - still showed strong financial management by consumers, though perhaps shadowed by affordability concerns as fuel and other costs rise.
Alright, so Liz Ruddick, welcome to the show, I'm so happy to be speaking to you. When I first landed in the UK, or now three years ago, one of the first things I was introduced to was your cards trends report. And for me, it immediately became a useful benchmark. So, yeah, it's a pleasure to have the chance to speak to you one-on-one. Before we talk about that Cards Report, though, and what it's been showing in the latest numbers, you are probably already quite well known to many people in the UK credit card industry, but for those listeners that are outside the UK, or maybe who haven't bumped into you before, let's start with a little bit of a background, how you've come to be authoring one of the go-to market overviews in the UK.
Liz Ruddick 2:46
Well, thank you, Brendan, and thank you for inviting me on to talk through credit card risk benchmarking trends that I report on each month. For those that don't know me, I work in our advisors unit, which is the business consulting arm within FICO. And FICO is a global analytics software provider.
When I was thinking how long have I been in this credit card industry, it's scary to tell you it's been 25 years now, I can't quite believe that! And I've been at FICO for the last 17. I'm UK based, but work with our customer management clients all over the world. So I help support things like credit card launches, system migrations, things like design of credit lifecycle strategies. And as I work with so many clients, I can also give industry best practice advice and support as well.
Now with the benchmarks, I've helped compile these and review the trends throughout my time at FICO for the last 17 years. And what's great with our relationship with our clients is that each of the clients credit card data is individually compared against the industry benchmark. So today I'm just going to talk through the high-level benchmarks but we do have it for each individual client, so if I see any unusual trends developing, for example, high numbers of customers missing payments, I will then reach out to my client and share this and we can then start discussing how best to try to combat this. As a bonus, we can also see the credit card strategies that these customers have in place. So a lot of the time the clients will ask me to review their strategies as well to see if I can recommend improvements. So this can cover things like collections treatment, limit management, activation, pricing, so all areas of the credit card lifecycle.
Brendan Le Grange 4:25
When I was doing market benchmarking in the Philippines, we moved from an industry average or an industry total to individualised reports. And it really does add a huge depth to the insights you can glean because often the average is just representative of the one or two big players in the market. And there can be so much happening underneath but once you can see below, and you can see the four or five different directions or the clumping up of different strategies it certainly changes and shows you so much more than an average would.
Liz Ruddick 4:58
Yeah, and also, it can also help influence what risk managers do for the year, what their priorities are. So, I will sometimes get asked by our clients, it could be that compliance teams are asking them, for example, are we giving out too many limit increases? Are they too high? And then I can go and look at all our data and report back and say 'yes' or 'no' and if that is the case, I can then help with the strategy side as well. So, you know, if ther's an issue, if there's something we need to address.
Brendan Le Grange 5:27
it's probably worth, before we going too much deeper, talking about how you come to have that data. So my background is in the credit bureaus, and there the banks/ the lenders every month, they send you a file of their data. And I was familiar with that. I was familiar with government data that works the same way, the regulator or some government body might dictate that every lender has to submit numbers to them every month or every quarter. But FICO's not that and you're not Visa or MasterCard or Amex who's processing the data in the way those outside the industry might think of it. So for people that might be saying, 'how do you see this bird's eye view of the credit card markets where you're operating?'
How is it that FICO as a sort of analytics business or software business is getting this data in?
Liz Ruddick 6:13
Yeah, you're right, we're not credit bureaus. So the data we use to compile these credit card benchmarks, it comes from the client reports that we get generated by our TRIAD product solution here in the UK. And that's used by our credit card providers - I think we cover 80% of the market, we've got a vast majority of the market.
We also produce the same benchmarks for our US and our Canadian markets as well. So FICO receives data and approximately 80% of the credit card issuers in the US, and in Canada it's even higher, I think we're looking at around 90% of the market. So we have the major coverage in all three of these countries, and the measures we use, they're standard across all clients. So they're generated from our product TRIAD, and the clients don't need to give us anything, they don't need to send us anything, it's always getting produced each month (in the background). So that way, we are confident that we are comparing apples with apples, essentially, that there hasn't been any data manipulation.
Brendan Le Grange 7:05
Fantastic. And in times as changeable as the ones we're in now, it's even more obvious why it's useful to have this steady guiding light to try and compare your numbers to. I'm sure, well this will be true of all businesses, but I'm sure credit card product owners around the world are looking and trying to decide 'is risk supposed to be going up? Are we supposed to be growing? What's happening?' There's inflation, there's the conflict in Ukraine, there's COVID that's still lingering... so to have that ability to see what the market doing, what are the general trends, I'm sure it's very reassuring going forward.
So let's start talking a little bit about those numbers that you've seen. Shortly before I left the industry, we were in COVID, the card market was dipping. And in part that was you would say because sort of opportunities to spend evaporated, certainly travel and entertainment, which are big areas for credit card spend, were not available. But then we started opening up now we're sort of leaving the lockdown world from COVID, at least in the UK. And then we've got more concerns about inflation, about fuel prices up our cost of living generally. So yeah, a very scattered market and I wouldn't know which way is it moving now.
So maybe if we start at the high level, what is the state of play today in the UK credit card market?
Liz Ruddick 8:19
Yeah, the benchmarking data from January, it suggests that despite the well documented increases that we've seen in the cost of living, we're seeing that consumers are still managing their credit card spend relatively well at the moment. And indeed, they're continuing to pay down significant portions of their balances as well.
Brendan Le Grange 8:37
It almost feels like there has to be a 'but'. I mean, obviously, we are paying in inflation for all that money that was injected in, but it does feel like the programmes that the government and the private sector put in place have largely helped. So it's yeah, not optimistic, perhaps, but certainly not as bad as it might have been.
And that's a phrase I catch myself saying, because when I was doing COVID market overviews myself, I think almost every one was about how Yeah, it's not as bad as it might have been. But when I stopped looking at those numbers every day, we were seeing people pay down their balances and your card balances getting paid down quite quickly. But that was in part because they said there was lack of opportunity to spend, but also because we were seeing things like mortgage payment freezes or mortgage payment holidays, it allowed people to take maybe some cheap capital from their mortgage and pay down the credit cards, the impacts of those I'd imagine have washed through now. So I was interested to hear what is happening with card balances.
Now we've got some pressure as you said, from prices, what are you seeing in terms of repayment of card balances
Liz Ruddick 9:48
in January, there was a slight increase and consumers are now paying around 41% of their payments as a percentage of balance. And if we look back to 12 months previously again, to January '21, this is a 17% increase. So to meet suggest that, you know, consumers are still using the savings made - if they've been lucky enough during lockdown - and also suggests that customers want to continue to have credit available for future spending. So perhaps waiting for more countries to relax COVID restrictions and testing protocols so that they can confidently book holidays.
If we look at Canada, the percentage of payments to balance there has been steadily increasing since August last year. And out of the three countries, this is the highest percentage with 56%, Canada didn't see the slight drop that we saw in the UK during December. So usually when you see trends coming through each year, and obviously Christmas spend is a big influencer. And you do see a slight drop in the percentage of payments for balance in December. And we did see that in our data as well. But then we saw this slight increase in January, Canada didn't see that.
And then if we look at the US, they've been a lot more consistent. So throughout most of 2021, their percentage of payments has been around 30%. So 30% for the US a lot higher 56% for Canada, and we're in the UK looking around 41%.
Brendan Le Grange 11:08
Yeah, I hadn't seen that cross country comparison before. I guess, if you'd asked me, I would have assumed the US would have the lowest percentage there, but it's interesting to see it. I know from my own time here, having a colleague in Canada that the two markets have, UK and Canada share a number of similarities, but also obviously a number of differences.
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Okay, balances are being paid down. And some of that might be from savings. If we think about how balances are created, though, obviously spend on it on a day to day and month by month basis is going to be influencing where balances go in the future. And as we've said a few times already now prices are going up. What are you seeing in terms of the spend that's happening on the credit cards in the latest numbers?
Liz Ruddick 12:07
Yeah, as I said with Christmas, then you're gonna see a big influence. So card balances, and then there have decreased since December. And this is obviously expected if you see the year on yet the spend on credit cards in January was £669. So it's a 12% drop after peaking during Christmas. But again, if I looked at 12 months previously, it's also 17% higher than it was in January '21. So the confidence I've been talking about in my market reports the last few months, it's still there, we're still seeing it in the customer spend. And since the third lockdown, we've definitely seen strong growth.
We've seen similar peaks and troughs in the US and the Canadian spend trends as well. In fact, UK sales have increased throughout most of 2021. And it was higher over Christmas that was in previous two years as well. And in fact, in Canada sales have reached the two year high in December reaching C$1,556.
If we then move on, look at the credit card overspend. So these are customers who spend over their credit card limit, the average over limit them out in the UK is £121. It is 18% lower than it was this time last year.
And an interesting side note, what's interesting to me is that you see a lot more customers spending out their credit card limit in the US and Canada than you do over here. Over here. It's less than 1% of customers that go over limit. But in the US and Canada, it's roughly around 4%. In the US, they don't have the over limit fee that customers may have here on their on their credit cards that may be influencing biggest we see here.
Brendan Le Grange 13:38
That's interesting. And also, I guess just further underlining that it's not as bad as it could have been to see things like even over limit spend decreasing. Now obviously, over limits being can't be separated from limit strategies themselves. So how card issuers set their limits is going to influence how easy it is for a consumer to go over that limit. So if I try and imagine what a portfolio manager and a card issuer is thinking right now, I can't quite place with limits would be heading. So I said earlier on, you know, you've coming out of COVID. So on the one hand, you know, we were talking about growth, we had been at some stage promised a V-shaped recovery before all of the more recent chaos, but it was out looking for growth, try pull back those balances that were paid down.
On the other hand, COVID has stretched so long, we've got a conflict in Ukraine, leading to rising prices. We've got inflation as a more broader problems. So maybe somebody's feeling a bit conservative and deciding to pull their limits down. I can't really work out what would be the sensible approach. So what are you seeing in terms of credit limits in the market and whether they're going up or going down?
Liz Ruddick 14:44
Well, at the start of the pandemic, there was actually an initial rise in the number of limit increases that were offered. So remember, in the UK, we offer limit increases to customers, we can't automatically just increase somebody's limit. But after those initial few months, the majority of issuers actually turned off all of their increase programmes. And we were seeing more aggressive limit decreases being given.
And this was in an effort to try and control each of our debt. And it's the only time in all my years working with the credit card data that I've seen the number of decreases actually being higher than the number of increases. But with the initial rise at the beginning, we saw similar trends in the 2008 recession as well. And the average credit line during the pandemic peaked in June 2020, and then sharply decreased in around the vember of that year.
Since that point, though, it's been steadily increasing, and it's now in January stands at £5,450. And the average credit line is now actually higher than it was pre-pandemic levels. So, you know, it's business as usual. Now, when it comes to limit management programmes, so with the right strategies in place, there should actually be fewer accounts needing or being allowed to go over limit in the first place, we saw a similar picture in the US with limits reducing, so they reduced through most of 2020 as well, when the issues put them in, they increase programmes on hold, although now it's not quite as high as it was pre pandemic, the average limit isn't far off now in the US. So it's standing at $7,789, if we look at January figures,
Brendan Le Grange 16:12
Okay, yeah, so 'business as usual', I think, is a good way to put it.
Liz, you, you talked about the change in spend values, but the pandemic and also maybe accelerated a lot of behavioural changes around card usage, obviously, with a huge push towards online that has been seen in all sectors - but I guess in payments in general - there's just been a way that maybe 10 years of changes all happened in the 2 years that we were in locked down, it feels like.
Are any of those sort of bigger changes being reflected in the data that you see?
Liz Ruddick 16:43
We've definitely seen a big change with regards to cash usage on credit cards during the pandemic. In fact, there's been a significant decline here over the past few years. And we've seen a 50% drop in the percentage of accounts that are using their credit card for cash transaction. So it's a big change.
And I think if we go back to what we saw third pandemic, I think we know the three major things here influencing this will probably remember that for several months, shops weren't accepting cash, we've seen the big increase in online spending, and I can't see that changing. And then in October last year, we saw the contactless limit increasing from £45 to £100 , I don't think we're ever going to reach those pre pandemic levels, again, when it comes to cash usage.
And then I was looking at Canada and the US as well, because it's such a massive change. And out of the three countries, Canada's highest percentage of customers using their credit card to take out cash with 10%. So although just as in the UK, the numbers declined, it's you know, 10%, still quite a high figure, the drop in the US wasn't as noticeable, but in January usage stood at around 4%. There now if you compare that to the UK, we're looking at 3% two years ago, the UK have slightly higher cash useage than we were seeing in the US, but now we're like two thirds or 3%, or percent in the US. And then there's much bigger in cashew sitting Canada with 10%. So yeah, a huge, huge difference. If it changes, it's gonna take a long time for cash usage to creep up, but I can't see ever gonna go to that level again.
Brendan Le Grange 18:07
Yeah, I'd say anecdotally from using a credit card that that's my experience. So when I moved here from Hong Kong, the contactless limit, there was HKD1,000 which is basically £100. And so when I moved here, I think it used to be £25. And when it started, there wasn't much usage of it, I would tap and go, but invariably, something was more expensive. And you're using your PIN. I had to try and remember what my pin was the other day, because it's been so long since I've had to put it in because yeah, it went to I think £25 to £45 to £100 - I think all within the pandemic, if I'm if I'm remembering, right. And if I just look around me at the self checkout, you know, everybody's tapping and going.
So I think you're right, I think, yeah, I've got it in my wallet from I don't know when last they were taken out of a machine. Yeah, I think that's a change that's here to stay. Before we wrap up. Liz, one thing I want to do is address the elephant in the room of risk.
We've said it's business as usual, largely, within the card space back sort of to pre pandemic levels. If we look at things like where credit limits are being set and spend seems under control, even over limit spend seems under control, but what about miss payments themselves? Because they have seen sometimes a trend can be hidden within the bigger numbers.
If we do look at consumers who are maybe struggling? Are you seeing any change and increase in the number of people missing payments
Liz Ruddick 19:27
Well, the biggest missed payment hits here are usually after Christmas. So between January and March, that's when the collections jobs are busy. So we're looking at January figures we have to keep that in mind.
During the half of the pandemic, the number of consumers struggling to make payments was masked by the payment holiday support that the banks offer. And we also have the furlough support. So as a result over here, miss payments were low. We saw similar trends in the US and Canada so the government gave grants there and although payment holidays were offered Like the bar over here, individuals could still apply for support if required. In Canada miss payments have been pretty stable since August 2020. And over in the US, the number of customers missing payments has been increasing, I'd say since around April 2021. And it's now nearing those pre pandemic levels.
So if we compare the three countries and we look at the percentage of accounts missing payments overall, in the UK, it's at 3%. And in the US and Canada, it's at 9%. So it's higher over there, and we're looking at 3%. But if we concentrate on the UK figure, so over here in the UK, the payment holiday support ended last October. So we are closely monitoring the percentage of customers who are missing their credit card payments, there is a little bit of concern, but as I've said, we have to take into account that there's going to be an increase in the number of the missed payments, as well as an increase in average missed balances as well, because of the Christmas spend that we see.
But often still, we are seeing an increase in the percentage of consumers missing one and two payments. So when I say two payments, I mean two consecutive credit card payments. And we're also seeing an increase in the average balance of accounts, one cycle in arrears as well did put it into context. 1.54% of accounts missed one payment in January, that's an average balance of £2,023. And if we look at since December, that's a 0.72% increase.
Now, interestingly, this increase actually started in December, which is a month earlier than what we usually see. So what I think we're seeing here is with the lockdown easing, I think it's resulted in customers spending more than they usually work prior to the Christmas rush. So we're a month ahead with the figures than we normally would see.
Brendan Le Grange 21:42
In historical context, that makes sense as well, because the Christmas before was the Christmas that was sort of stolen at the last minute, where everybody was promised a break and then the numbers spiked, and it was... I mean, I was driving down from Yorkshire to the south coast as the messages were coming through. It was two days before Christmas or something that everything was cancelled. (yeah). And I think this year, people maybe wanted to take their chances and thought, well, it might be November but let's get it in while we can because we don't know what might happen by Christmas time - so let's just have our festive season for as long as they let us and then carry on from there.
Liz Ruddick 22:16
Yeah, I think so if we look at two missed payments, it's 0.3% of accounts that missed two payments - the two payments in a row. This is an increase since December though by 11%, nearly 12% actually. So although this sounds a lot, again, if we look at this time last year, it's actually 11% lower than it was this time last year. And the average balance of those customers that are missing two payments and the road that's remained flat since December, and is nearly 4% lower than it was a year ago.
What we can also do with the data I haven't mentioned it so far is we can break it down by vintage. So this is how long customers have their credit card for. And we have three vintages in our benchmarking, we have new established and veteran accounts, veteran accounts of customers that have had their credit card for five plus years, then we have new customers. So these people have had their credit card for less than 12 months. And then for established, it's that one to five year grouping in the middle. So for new accounts, these are usually the riskier segment, you're going to be more credit hungry with recently asked and taken out a credit card, they're usually a lot more active. And typically, we're going to see more missed payments for these customers. Those people who take the card and are riskier and are going to struggle with payments, they haven't had a chance to filter through yet. So they're still within this group of new vintage.
So if we look at the new accounts, and just look at those in isolation, if we compare these customers 12 months earlier, the percentage of customers missing one payment is actually 19% Lower. And for two missed payments, it's 35% lower. That's a big difference. And 12 months ago, some of these customers would still have been on the payment holiday so the fact that the number now missing these payments is lower than a year ago is very encouraging. But obviously we're going to keep tracking this. We don't know how you know, the next few months over the Christmas cards fed and that spent prior to Christmas, how that is going to influence it. But so far, it's looking okay.
Brendan Le Grange 24:11
Yeah, and doubly encouraging, because you spoke about early on about your reports being available at the individual level. And one of the messages I always tried to push when I spoke about the industry was if we talk about an industry as a whole, that average can hide a lot of trends underneath. And that principle I think is true, no matter what numbers we're looking at, to be careful of talking about the average. And one of the ways that that was concerning people during those two years of peak COVID was that yes, we could tell them everything's under control, but they're saying what about these few people that are opening new accounts? Maybe the average risk story's fine, because 90% of people are fine, but who's opening new accounts now? And that was concerning a lot of risk issuers in credit card but across all the product types that 'yeah, if I look my whole portfolio does that reflect this group of people who made pandemic are opening a new account? What if they just coming off a payment holiday? And they're not going to be able to afford it? What if they taking this out now, because under lying risk issues have emerged?'
And so to see that that vintage, those people that were of most concern are so much lower in terms of the actual risk, I think is very reassuring, because it says that actually, risk was well measured the numbers that they were looking at to make those decisions, their scorecards, were telling them a good story. And obviously, individual lenders may have lifted their cutoff or been stricter in who they lend to, but it does show that the models that they use, because that's obviously we're both from analytical backgrounds, one of the concerns when you work in a scorecard environment, and then you go through two years of pandemic is, 'will my scorecard still work? Has this undermined everything, because now the two years of history is so fundamentally different to what I built the model on?' And that story of surprising steadiness, I think, is now repeated in here that, yeah, it wasn't as bad as it could have been, the government injected a huge amount of money here, in Canada and also in the US, and it seems to have kept rather steady. And it seems like scorecards are working, it seems like even newly-issued products are performing as expected, or even maybe better.
So there's a big cloud still on the horizon. Unfortunately, we didn't get that lovely sort of roaring 20s with a V shaped recovery. And we've now got inflation and fuel price concerns, but consumer economy feels like it's still quite well prepared, it's not going to be pleasant, there's certainly going to be people that are really suffering with it. But it does feel like it's still in a relatively stable point, which is good to know.
That said, it does remind me you do do these reports at an individual level. So I'm sure there are people listening, whether they were in the UK, where we focus today also Canada or the US where you have the reports as well, who may want to see their portfolio, or what they look like in the context of their marketplaces. Or if somebody just wants to read that report to understand the market a little bit better, what is the best way for them to approach you or to learn more about FICO?
Liz Ruddick 27:08
They can reach out to me directly and obviously, I'll be happy to help and if they're tried using already know who their strategy consultant is, they're also very familiar with the report as far as they can also help but obviously, don't know, please contact me and I'll be happy to help.
Brendan Le Grange 27:22
Great and thank you very much. And thank you all for listening. If you enjoyed that, please do rate and review on your preferred podcast platform and share widely including on LinkedIn. And while you're there, send me a connection request.
The show is written and recorded by myself Brendan le Grange in Brighton, England and edited with assistance by Kane Hunter. Show music is by Iam_Wake and you can find full written transcripts now in several languages, show notes and more content at www.howtolendmoneytostrangers.show. And I'll see you again next Thursday.