UK Plastic Card Market Grows as Rates are Squeezed

A new report from Datamonitor reveals that UK spending on charge, credit, debit and store cards grew by more than 11% last year, reaching a new record level and outpacing the overall rise in consumer spending. Increased competition in the market means lower rates and tighter margins for providers.

The 'UK Plastic Cards' report states that cards have grown in importance as both payment and borrowing tools. In 2004, the value of transactions made on plastic cards accounted for 60% of the value of total household expenditure, up from 44% in 2000 and just 26% per cent in 1995. Datamonitor notes that this is an imperfect measure as it includes cash withdrawals and business card payments as well as personal spending, but believes that it illustrates a trend towards greater card use.

According to Datamonitor's UK Credit Card Price Tracking Database, increased competition in the credit card market has led to lower interest rates for consumers, meaning decreased margins for card providers. The average standard purchase APR declined from 18.6% to 16% between June 1999 and March 2005. This was accompanied by rapid falls in introductory balance transfer rates - from 12.2% in June 1999 to 3.2% in March 2005. Introductory purchase rates have also fallen over the same period, from 9.7% to 0.3%. Despite a fall in the base rate over this time, rates have fallen more quickly than the cost of funding.

High levels of customer churn, as consumers switch to follow the best rates, have also hit issuers, and some are now imposing fixed fees on balance transfers. However, Datamonitor believes that the US experience shows that introductory rates can comfortably exist in mature markets, and are therefore likely to remain on offer in the UK.

Datamonitor provides analysis and forecasts for six industries: Automotive, Consumer Markets, Energy, Financial Services, Healthcare, Technology. The company is online at www.datamonitor.com .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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