4 payment trends brought about by COVID-19 in the UK

By Megha Bhattacharya

COVID-19 has brought about many changes in consumer behaviour and issuer offerings. Auriemma Group’s 2020 Cardbeat UK Trend Report identified four areas where shifts were most prominent, highlighting the impact that the pandemic has had on the payment’s ecosystem for both financial institutions and cardholders alike –

1. New card acquisition, spend amounts and card usage have declined.

Cardholders were less engaged with their existing products and fewer sought new products compared to prior years. According to Auriemma’s research, new card acquisition dropped nearly 50%, with only 10% of UK credit cardholders in Q4-20 saying they acquired a new credit card in the past 18 months, down from 18% the same time the year prior.

Cardholder spends across payment methods declined from Q4-19 to Q4-20, coinciding with a drop in usage among the heavy top wallet card users. By the end of 2020, UK cardholders reported £854 in average monthly spending, down from £988 the year prior. Meanwhile, the proportion of cardholders who use their most frequently used card 20+ times in a typical month decreased over the same period (30% vs. 22%).

2. Types of rewards cards held shifted away from T&E and towards day-to-day rewards.

The impact of travel restrictions and stay-at-home guidance was felt most prominently in the T&E space. Over 2020, the types of rewards cards held shifted to align with new consumer spending patterns due to COVID-19. Ownership of supermarket co-brand (from 21% in July 2020 to 28% by November) and cashback cards (23% to 27%) rose, as co-branded airline (19% to 9%) and hotel card (5% to 2%) ownership trended down.

“While rewards card ownership shifted towards the end of 2020, and travel naturally became a lesser focus given the obvious limitations, our research found that most T&E cardholders still enjoy earning travel rewards” says Jaclyn Holmes, Director at Auriemma Group. “These cardholders currently prefer redeeming their rewards for non-travel benefits, but we anticipate travel-centric redemption will bounce back as travel becomes more routine.”

3. Payment holidays became a commonplace issuer-provided relief option.

COVID-19 impacted some cardholders earning potential, leading issuers to develop payment accommodations, including payment holidays, for those unable to make their payments. Despite being a new concept to many, credit card payment holidays had strong consumer awareness by Q4-20 (94% aware), and nearly one-quarter of those offered the option took it.

Future interest was rather low (17%), signalling that the accommodation–which was intended to be a temporary, short-term solution–likely will not be missed post-pandemic. In fact, 58% of cardholders were ambivalent or would not be disappointed if payment holidays were no longer an option in the future.

“We’ve passed the March 31st deadline for cardholders to enrol in payment holidays, so issuers are now preparing for a possible increase in delinquency volume. Most cardholders aren’t expecting to rely on a future payment holiday, but there will be a group who aren’t able to jump back into their payments and will seek alternative accommodations to help make ends meet,” says Holmes.

4. Reduced spend and focus on paying down balances led to fewer in persistent debt.

While shifting finances were a hallmark of COVID-19, reductions in spend and access to payment accommodations led some to improve their financial positions. Auriemma found that the number of cardholders in persistent debt decreased from 7% in Q4-19 to 3% by Q4-20, likely because cardholders were able to focus on paying down their balances without compounding interest slowing them down.

“COVID-19 had the potential to worsen persistent debt, but a combination of cardholder thriftiness and payment accommodations created an environment where consumers could improve their financial standing instead,” says Holmes. “However, as payment holidays come to an end and spend levels return to pre-pandemic levels, we’ll see if this change, along with the others that emerged in the shadow of COVID-19, is long-lasting or temporary.”

READ MORE: Payments & Cards Systems and Suppliers Report 2021 by IBS Intelligence