We British are profligate wielders of plastic compared with our EC counterparts. It's a market free-for-all for issuers, which suffer from both card-sharp fraud and savvy customers, says Lucy Aitken.
The lion's share - pounds 827 billion - of the UK's trillion pound household debt is tangled up in mortgages. Loans comprise pounds 177 billion, with credit card debt claiming pounds 55 billion. Thanks to ubiquitous offers of credit cards or extensions to existing credit limits, that debt has risen from pounds 10 billion in 1993, according to the Bank of England.
A wallet full of plastic is a very British phenomenon. According to TGI, 63% of adults have a credit card and 15% have four or more cards. Yet in Germany, widespread availability of overdrafts has meant that Germans eschew credit cards for debit cards. The UK, with the highest credit card penetration in Europe, more closely resembles the US than most of its European neighbours.
A glut of competitive deals characterises the sector and, over the past two decades, it has been transformed from domination by a few players into a free-for-all - for example, Ryanair has teamed up with MBNA to offer a Ryanair Visa card.
MBNA and Capital One are the new US entrants that introduced aggressive direct marketing to revolutionise customer acquisition. According to Experian, MBNA is now the third-biggest card issuer in the UK, while Capital One is the seventh-biggest.
Retailers have also entered the marketplace, and more than two million Marks & Spencer credit cards are now in issue. Meanwhile, supermarkets have introduced credit cards that notch up loyalty card points with every use.
Through a joint venture with Royal Bank of Scotland, Tesco launched its card in 1997 and has issued two million of them. Alistair Smillie, head of lending at Tesco Personal Finance, counts his blessings, but sounds a note of caution to other card issuers: 'A lot of our customers are attracted via the clubcard scheme. Incentives have changed the market and one or two players are starting to ease back on them because they're so expensive.'
Smillie adds that it's plausible to expect a return of the annual fee: 'In the US, card issuers have an upfront fee and that's the last thing we'd want to see happening here. But the way margins are, the numbers won't stack up for many issuers unless they can educate the market to move away from short-term deals.'
Annual fees are accepted on 'elite' cards; for an Amex Centurion card, the price tag is pounds 650, which is loose change from the qualifying pounds 100,000 salary. Benefits include upgrades on airlines, access to exclusive meeting venues across the globe, and even flowers dispatched to a loved one on your behalf. Says Richard Watkins, managing director of management systems at Experian: 'These high-premium products go to people looking for specialised services. For busy execs whizzing around the world, this is a valued feature worth paying for.'
The downside is that the huge credit limits synonymous with these kinds of card are magnets for magpies. Fraud cost pounds 402.4 million in 2003, according to the Association for Payment Clearing Services (Apacs), although that figure is down from pounds 424.6 million in 2002.
Intelligent detection software is eroding levels of fraud, and new technology such as Chip-and-pin is predicted to halve fraudulent transactions. Apacs estimates that without Chip-and-pin, fraud would rise to pounds 800 million by 2005.
Yet Experian's Watkins has reservations about Chip-and-pin: 'The growing concern is not from cardholder-present transactions, it's from online or phone transactions and the move towards violence to obtain PIN codes. Because we have so many PINs, there is a tendency for people to use the same one for each card, making the rewards even greater for the criminals who get hold of them.'
Apacs figures support Watkins' view: cash machine fraud has increased 10-fold in the past decade, while cardholder-not-present fraud has increased exponentially from pounds 2. …