At 40, Is the UK Credit Card Industry Facing A Mid-Life Crisis?

2006 will see the UK credit card industry celebrate its 40 th birthday. Now, technically that’s not 100% correct. Although it would be true to say that way back in 1966 Barclaycard did introduce the concept of a charge card on an unsuspecting British public, it was not until a change in the law a year later that Barclaycard were allowed to amend the terms of its card from that of a charge card, that had to be repaid in full each statement payment date, to that of a credit card, where cardholders had the option of making minimum monthly repayments and “carrying over” a balance at interest. That minor blip aside, in 2005 there were more credit and charge cards in circulation in the UK, at 75 million, than the entire population of the British Isles! Wow, if that is not an impressive assimilation and complete transformation of cultural norms in a short space of time. But, as it celebrates its 40 th birthday party, would it be fair to say that the UK credit card industry is facing a mid-life crisis?

In order to answer that question, let’s look at some compelling an interesting facts. In 2005, outstanding debt on UK credit cards stood at £56 billion. A decade earlier, the outstanding debt on UK credit cards was a “mere” £14 billion. Hardly sounds like an industry in trouble! However, in 2005 there were an astonishing 1,300 providers of UK credit card that you could choose from. A decade earlier, this figure was less than a hundred. So, not only has the industry got big, but there is intense competition.

It may come as a surprise to learn then that overall outstanding debt on UK credit card fell for the first time in a decade in the first quarter of 2006. Now we appear to have a combination of a huge industry, intense competition, and falling demand. Obviously, not everything is going to plan at this birthday party!

An educated consumer

The underlying and undoubtedly facts are, the UK credit card user is becoming a much more educated consumer. Today’s credit card user in Britain can demand far more from their credit card issuer than at anytime in the past 40 years. What’s more, they can get away with it, because the competition is so intense. Part of this overall education is, finally, an understanding that carrying debt on a credit card in the UK is an extremely expensive way to borrow money. For example, although we mention that outstanding debt on UK credit cards currently stands at £56 billion, did you know that a whopping 60% of credit card users now repay their credit card bill in full each credit card statement payment date? Well, it's a fact.

The future

So, at 40, what does the future hold for the UK credit card industry? Undoubtedly, the UK credit card industry is here to stay. Equally undoubtedly, however, is the fact that competition in the industry is currently too intense, and the variable different option now available to consumers is making UK credit card users far more educated as to what options they have available to them. If for no other reasons than these, in the not too distant future, may a credit card provider in the UK may well see 39 as having been the high watermark in the life of the UK credit card industry.

Richard Smith
24th July 2006

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