Outlook: Credit cards
Saturday 10 April 1999
That, in a nutshell, is the problem faced by Barclaycard, which announced yesterday that it is cutting the rate it charges holders of its card by 1 per cent from its previously-extortionate levels. The news, while no doubt welcome to Barclaycard's seven million customers, is unlikely to reverse the growing trend towards cheaper and more com- petitive issuers.
Whereas even a decade ago, Barclaycard's dominance of the market meant huge profits for its parent, Barclays Bank, the same no longer applies today.
Advances in technology make it far easier for new entrants to deliver competitive products. In the past three or four years a clutch of new issuers, particularly from the US, have launched cards which charge as little as half the amount Barclaycard does.
In the past, Barclaycard could point to the fact that the vast majority of its cardholders, two-thirds or more, paid off their debts at the end of each month. They therefore incurred no charges, extortionate or otherwise, and the meantime benefited from Barclaycard's loyalty points system.
But times have changed. Surveys show that the proportion of cardholders who pay their debts off in full each month has dropped to 50 per cent. Up to a quarter carry their balance (another name for debt) indefinitely, making minimum payments and rolling over the rest. Users' increased willingness to manage rather than pay off their card debt means low-charging issuers are bound to become winners in the credit card war.
Barclaycard has applied all the usual tricks to inspire loyalty, but in the end the offer of a free toaster to those silly enough to run up debts of pounds 3,000 on their credit card won't help much if such a debtor is paying pounds 300 a year more than he or she needs to for the loan.
Moreover, whereas once upon a time a Barclaycard was one of the few means available to pay for something in a shop without cash, the same no longer applies today.
Debit cards which simply deduct the money from a bank account are now commonplace. Flexible mortgages, particularly those which come as part and parcel of a bank account, complete with credit card linked to the prevailing mortgage rate, are growing in popularity.
The fragmentation of the credit market means greater competition and lower profits for everyone, including Barclaycard. Its inability to respond in time has already led to 1,500 redundancies for its staff in the past few months and a slump in market share. Yesterday's rate cut will do little to halt the erosion in Barclaycard's position. It was both too little and too late.
The Microsoft mogul told fans a few home truths during his Reddit AMA
- 1 Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
- 3 Ball pool for adults opens in London
- 4 Baldness could soon be treated using stem cells, scientists hope
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
Boris Johnson claims porn-obsessed Islamic jihadists are 'literally w*****s'
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Teenager brandishing fake gun taken down by police after demanding airtime on Netherlands' NOS TV station
Ball pool for adults opens in London
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...