Credit Card Companies Feeling The Heat – Says Moneynet

Credit card companies are losing around £2 - £3 billion a year through offering consumers 0 percent deals on balance transfers and purchases.

While so called 'rate tarts' have enjoyed the benefits of switching debt between credit card providers – at the expense of the plastic firms - Moneynet.co.uk, the online financial data comparison site, today said that UK credit card firms would have to deliver ever more competitive products if they wanted to retain customers.

“Recent research from Apacs and the BBA* shows that spending on credit cards is expected to rise by just 3 percent over 2005 - down from last year's rate of 8 percent – and Apacs has forecast zero growth by the end of 2006.

“The standard credit card is effectively an endangered species,” said Moneynet chief executive Richard Brown.

“Up until the end of last month, borrowing on credit cards has grown by just £0.8bn, compared with £3.8bn during the same period last year. But debit card use is currently going up at a rate of 20 percent a year, and now accounts for two thirds of all spending on plastic,” said Brown.

“And there are new threats to the overall health of the credit card – Egg's new Money Manager Account, effectively a debit card with an overdraft facility where you earn interest on credit balances and pay interest when overdrawn – is likely to herald a new trend, with more flexible cards that will pay interest when in credit.”

“One thing is for sure, mainstream card firms will have to be less complacent in order to retain existing customers – and win new ones.”

“Competition in the credit card market is potentially excellent news for consumers, and with the likes of Egg shaking up the market with innovative new products, the longer term outlook for the canny borrower is good.

“But for the credit card company executives, the future might not be so rosy,” he added.

* Apacs report, August 2005
BBA bulletin, September 2005

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