Credit card industry set for change |
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| Strategic Finance | |
| Written by Roberta Murray | |
| Monday, 09 November 2009 | |
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An indebted nation: on average, 15% of income will be spent servicing debt.
PriceWaterhouseCoopers (PwC) has warned of significant changes to the credit card industry. Despite the fact that UK consumers have called a halt to increases in their debt levels, they still remain noticeably high in comparison to the rest of Europe. On average, UK household debt averages at around £60,000, made up of approximately £50,000 of secured debt and £10,000 of unsecured debt. These debt levels mean that the average household will need to spend approximately 15% of its net income purely to service the interest payments arising from this debt. Richard Thompson, partner, PricewaterhouseCoopers LLP, said: “Over the last 12 months there has been a cooling passion for plastic – credit card borrowing has fallen by 3% to £64 billion and the number of cards in circulation has fallen by 8%. “Bad debts in the sector have reached historic highs, standing at nearly 6% of outstanding balances. Our analysis suggests that bad debts are likely to continue to rise and could reach 9% by the end of 2010. This would have enormous implications for the profitability of credit cards in the UK market. “Large scale change within the sector over the next few years is inevitable. We’re likely to see credit cards being reinvented as payment rather than borrowing tools.” PwC expects APRs to increase and annual fees to become a common feature. At the higher end of the market customers will pay for access to premium benefits and at the lower end more marginal customers will be expected to pay for even a standard credit card. Innovation is one way of repairing the credit card business model and consumers will be presented with more options, as providers experiment further with contactless cards, prepaid cards and mobile payments. For example, critical mass is building in terms of retailers accepting contactless cards and new acceptance environments such as taxis, vending machines and public transport will serve to accelerate the expansion of contactless acceptance.
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