We are on the last lap, the final straight, with the finishing line now in sight for the end of the working year.

The holidays are almost upon us and most of us are just exhausted from what has been a year of turmoil and change. This week was one final push to get across the line.

But as thoughts turn to Christmas, mince pies, mulled wine and bad TV here is a quick last look at the news and developments this week.

Decline of the Credit Card

Credit card spending continues to be down, with the great migration to debit card spending and in particular to contactless continuing. The drivers of this are informative, especially in the midst of such economic uncertainty.

• Consumers moving away from large ticket items, such as holidays or flights where they need to spread the cost, to smaller online purchases.
• Also, arguably some consumers have lower expenses, if working at home, and therefore higher disposable income. The need for credit is just not as high.

All of this has consequences for banking and lending, where products such as credit cards drive such a large degree of revenue.

Consumers still financially stretched

Whilst this may be true for credit cards, lending is not however done as yet. For some customers there continues to be a need for credit and some customers now more financially stretched that ever.

Rise of Buy Now Pay Later

Much has been made of the Buy Now Pay Later (BNPL) sector, which has been on a tear since lockdown. More than 15% say they will now select the option if available at checkout.

The industry argues that loss rates are low, they never charge interest, nor report to the credit bureau, so there are not creating problem debt… they are ‘different from credit cards’.

However, all this reminded me very much indeed of the early days of credit cards. There was explosive growth, loss rates were low and customer rewards high. The parallels are striking. Even the product itself is not much different from early charge cards, which also do not charge interest and have no credit limit.

Outrunning losses

In a high growth phase, with high interchange rates charged to retailers, it is possible to outrun your losses. The numbers look great and with slick marketing campaigns easy to persuade yourself, and customers, that it is different this time.

However, for those in financial difficulty, this is extra debt and can contribute to problem debt. It is a big issue for them.

… and when the growth music stops, either due to market competition, in the case of credit cards, or regulatory change (high cost short term (payday) loans), loss rates shoot through the roof, crushing profitability.

History Rhymes

These are some of the hard yards learnt by the regulated credit industry over the last 20-30 years. The current focus on positive customer outcomes, especially in the current environment is undoubtedly a good thing.

With the FCA now circling and the BNPL specifically mentioned the sector is in its sights. Regulation is likely, and some seeing the writing on the wall are already getting authorised.

So, as we finish the year, it is important to remember that life can be a circle, new products can be old products in disguise.

It has of course always been the case, however, the problems and solutions often repeat too, it is solvable, it has been done before… something to think about to plan and get ahead of the trend for next year.

Have a good weekend everyone…. @chris_w_tweet

Most of this year we have of course been focused on the COVID pandemic, its impact on the economy. We are out of full lockdown and settling into the latest set of restrictions. Over the last week, not much has changed.

Most of us are now just looking forward to having a break from it all. Certainly, if you look at the crowds at the shops, we are somewhat trying to forget about it. Christmas is simply a welcome distraction.

The actual main news this week was Brexit, which has burst back into our consciousness. Specifically, this was the prospect of a no-deal, which by all accounts is now looking increasingly likely, and grim. With plenty of reporting on the impacts that we could see it would be another economic shock in addition to COVID.

It is the topics no one wants to talk or think about. For reasons of sanity, not to mention keeping friendships, we have learnt it is a best to close this part of our brain. It has been best avoided. However, it really is now upon us.

A story that neatly illustrated some of the future complications we are going to face was that of a Belgian customer. They purchased a UK property, have since moved to the Netherlands and are no doubt renting out the property for income. They have just had their UK current account closed, forcing needed action… what to do?

This is by no means the most significant potential impact (third country data impacts, tariffs and travel restrictions spring to mind), however does illustrate how this is is all going to get very complicated, very quickly, with knock on impacts on loans and lives.

What is clear from this week is real impacts are now looming fast. It is something that we will need to come to terms with, deal with it and have strategies for soon.

We are not quite there yet, something positive may happen this weekend, but it is time to start thinking ahead.

Try to have a good weekend everyone… @chris_w_tweet

* Søren Kierkegaard