American 'tigers' fire first shot in credit-card war

Four American credit card companies, dubbed the "Four Tigers", have launched an all-out assault on the UK card market, currently dominated by the likes of Barclaycard and Access, by charging initial interest rates of less than 9 per cent.

The American credit card specialist MBNA has been mailing selected potential customers with an offer of 8.9 per cent interest for the first six months, with a switch to their standard rate of 18.9 per cent after that.

Even MBNA's standard rate, however, is significantly below the 22.3 per cent charged by Barclaycard. More damagingly for British high-street banks, the Americans do not charge an annual fee. Barclaycard charges pounds 10 a year, and NatWest's Mastercard pounds 12.

The UK base rate has fallen to only 5.75 per cent, and inflation to 2.1 per cent. Politicians and consumer groups have frequently criticised the banks for failing to cut credit-card rates in line with falling base rates.

The Monopolies and Mergers Commission investigated whether the four UK high-street banks were operating a credit-card cartel in the late 1980s. For the previous 20 years Barclays had issued Visa cards, with the other three issuing Access.

The commission's probe withered away when two new issuers, Chase Manhattan and Save & Prosper, issued cards. But the market is still a hot political potato.

However, don't even think about applying for an American card. The tigers operate on an invitation-only basis. They write to people they consider to be good credit risks.

The US companies prefer to keep a low profile, in contrast to Barclaycard's television advertising campaign, starring the comedian Rowan Atkinson.

The Four Tigers have taken large swathes of customers from American high-street banks, such as Citicorp, by concentrating on people with good credit ratings, and offering rock-bottom interest rates. And now the US market is saturated with low-rate credit cards, the "tigers" are turning their sights on the UK market, which they regard as "complacent".

Industry observers see it as the first concerted attack on the lucrative stranglehold that British banks have had on credit cards. While UK institutions like Save & Prosper have tried launching low-rate credit cards before, the high-street banks still dominate the market and still charge rates of 22-23 per cent.

One American tiger, Advanta, set up a company in February with Royal Bank of Scotland to offer rates of less than 14 per cent for six months, followed by a standard rate of 15.6 per cent.

Mark Austin, planning and development manager at the RBS Advanta, said: "There has been a phoney war in the UK credit-card market for some years now. But the Americans have done it in the US and they're serious. Over 30 per cent of people who have credit cards in the UK pay interest on them, and it's these people they're aiming at."

Two companies, MBNA and RBS Advanta, have been recruiting heavily in the UK since Christmas. MBNA entered the UK two years ago by linking with a range of British card issuers such as Allied Dunbar and Barnsley Building Society. The two other "tigers", Capital One and First US, are expected to follow suit.

The British have reacted this year by launching their own introductory rates - in reaction to the competition, not to falling base rates, according to their critics. Lloyds is offering 16 per cent for the first six months on its Mastercard, before switching to its usual rate of 22 per cent plus a pounds 10 annual fee.

NatWest has been the most adventurous of the British banks by offering a 12 per cent introductory rate. But after that it will still charge 22.7 per cent, plus an annual fee of pounds 12.

It is not only wealthy customers that will be targeted by the Americans. RBS Advanta's benchmark is the over-21s earning over pounds 10,000 a year. But they all use highly sophisticated credit-scoring databanks to "cherry pick" potential customers, hoping to leave the dodgy late-payers to the British.

American credit cards take on the British banks

Card Interest % (APR) Annual fee

MBNA 8.9 (first six months) 0

RBS Advanta 15.6 0

Barclaycard 22.3 pounds 10

NatWest Mastercard 22.7 pounds 12

Lloyds Access 22.0 pounds 12

Midland Access 22.3 pounds 12