FICO UK Credit Market Report July 2021: Pandemic Savings Mask Picture of Debt

Global analytics software provider FICO today released its analysis of UK card trends for July 2021, which reveals that there was an uplift in missed payment rates, whilst spend on cards marginally fell. There was also growth in cash usage.

It was the first full month of all retail and hospitality sectors being open; the school summer holidays started and the government furlough contribution reduced from 80 percent to 70 percent. All of these factors are likely to have contributed to consumer spending and repayment behaviours.

Missed payment rates see month of growth

The percentage of accounts missing payments in July increased by 3.2 percent. Their associated balance as a percentage of total balance also increased by 3 percent, perhaps a reflection of the reduction in furlough support and business loans repayment starting. Unsustainable post-lockdown spend could also be contributing.

The increase in the percentage of accounts and their balance missing one payment in May has resulted in an uplift in accounts missing three consecutive payments in July — up 19 percent. July also saw:

  • A 7 percent increase in the percentage of card holders missing one payment
  • Increase in average balances on accounts missing one or two payments also increased in July.
  • Balances for card holders missing two payments are £215 or 9.5 percent higher than July 2019.

However, there is also a trend amongst those consumers who are able to make payments, to increase the percentage of payment to total balance. In July it increased 5.7 percent compared to the previous month, to yet another over two-year high and it is 22 percent above pre-pandemic levels in July 2019. This suggests that the extra lockdown savings continue to influence payment trends, along with the final three months of furlough support and lower average card balances.

The percentage of accounts paying the full balance remains stable, at an over two-year high, and is 16 percent above July 2019’s result. Consumers shifted from paying the minimum amount in July to less than and more than the minimum; the majority moving to the former, which is reflected in the higher missed payment rates. And the percentage of consumers being charged interest increased in July, a common link with rising missed payment accounts, although it is 14 percent below pre-pandemic levels and the average amount charged is 22 percent lower.

The coming months will show if there is a trend emerging and more consumers who were able to maintain minimum payments are facing further financial struggles. Lenders will need to continue to monitor these payment trend changes, focussing on reducing payment percentages to balance, especially if balances are being maintained or, more worryingly, increasing.

Cash usage continues to slowly grow

The percentage of consumers using cash on their credit cards also continues to grow – in July by 4.2 per cent. Consumers moving to using cash, with little or no previous cash usage, could be showing signs of financial issues. But it is still well below pre-pandemic levels and with the contactless limit increasing mid-October from £45 to £100, cash usage may not return to the higher levels seen pre-COVID19.

Looking Ahead

Lenders will need to be vigilant and analyse their data and results rapidly, in the changing economic conditions during the remainder of 2021 and into 2022. The full scale of the debt issues should become clear over this period too, so focus will be on the impact on collections as well as preparation for strategic approaches post COVID as issuers decide what their ‘new normal’ is.