Insight & Analysis

TT 25th anniversary: the rise of consumer credit

Published: Nov 2023

Since Treasury Today was founded, there has been a massive growth in consumer credit – with new forms now available – which has been a boon to corporates that sell to consumers, as well as a lucrative line of business for others.

Person using their contactless credit card in shop

There was a time in the UK when an unmarried woman was unable to get a credit card. And if she was married, her husband would have to sign the paperwork. How times have changed! Since Treasury Today was founded in the late 1990s, this hadn’t been an issue for a couple of decades, and since the access to consumer credit has grown beyond recognition. In the 25 years since Treasury Today first opened its doors, we have seen a massive expansion in size and form of consumer credit – which has helped corporates sell to consumers and has also been lucrative for financial services.

Today the figures are mind-boggling. In the third quarter of this year, figures from the New York Fed showed household debt in the US was over US$17trn, with credit cards accounting for US$1trn and auto loans US$1.6trn.

This industry is unrecognisable from the first charge card introduced back in the 1950s by Diners – a charge card that allowed customers to effectively put their restaurant bill on a tab, which was settled at the end of the month. That idea exploded when BankAmericard® (which later became Visa) created a general purpose credit card, which paved the way for the credit card industry we see today.

Consumer credit, however, is nothing new. It has been around since the Sumerian civilisation of around 3,500 BC, and has been around in different forms. In the US, a pressing need for credit became apparent when Henry Ford produced the Model T in 1908, aimed at the mass market. Ford didn’t lend, however, and set up savings plans so customers could leave deposits at dealerships and drive away in the car only when they had paid for it in full.

General Motors, however, had a different idea and in 1919, General Motors Acceptance Corporation (GMAC) was born with its instalment financing. Ford eventually established its car financing company in 1959. In the years since Treasury Today was founded, this industry has become huge with many changes. GMAC, for example, was bought by investment firm Cerberus Capital Management in 2006, then became a bank holding company during the financial crisis so that it could be bailed out. Since then, it has been rebranded as Ally Bank, and has been known as Ally Financial since 2010.

Car leasing is now the preferred type of auto loan, where the consumer doesn’t own the vehicle outright, but they can drive a new car in exchange for making regular payments. By 2018, in the UK for example, approximately 91% of cars were sold this way according to KPMG. For treasurers at auto companies, this has smoothed out the income from lumpy sales figures for new cars that were only released once a year, into regular smaller payments on vehicles that can also be financed for second-hand purchases if the customer returns them when their plan expires.

For such large purchases it makes sense to have the item before paying for it outright. In recent years, however, buy now and pay later (BNPL) has taken on a new meaning altogether. It could be argued this is credit by a new name – not much different from hire purchase agreements, for example – but the industry has boomed in recent years. It is estimated, that in the UK over ten million people have borrowed these short-term point of sale loans. And Can Balcioglu, VP, Treasurer at PayPal in Singapore – in a previous interview with Treasury Today pointed to the rapid growth the company had experienced since it launched BNPL in 2020, with over 300 million loans to 35 million customers.

With the changes we have witnessed in the consumer credit market over the last 25 years, however, it is difficult to imagine how this industry will look in the future.

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