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According to Lafferty's Global Credit Card Profit Pool Index, the annual profit per card level has fallen in the UK from £27 in 2005 to £16 ($32) in 2006. This puts the UK in the bottom third of credit markets worldwide based on profitability. Steven Letch, senior researcher at Lafferty's World Cards Intelligence Research Unit told the Financial Times that several factors had led to "a most severe impact" on UK credit card profitability. "Interest rate charges are low by historical standards having fallen due to competition. Lending outstanding on cards has declined while at the same time there has been a rapid rise in bad debts," he said. UK card issuers are also facing regulatory inquiries into areas such as payment protection insurance, which is highly profitable to credit card issuers. The FT says that last year the Office of Fair Trading forced credit card issuers to slash penalty fees on credit cards to £12 from about £25. This cost the industry £300m in lost profits. In recent months, credit card issuers have been trying to claw back lost profits by pushing up annual percentage rates, cutting back on loyalty schemes or even charging for duplicate statements. Last week, Morgan Stanley announced it was to charge some credit card customers a £20 annual fee, sparking fears that annual charges on credit cards would return. Co-operative Bank has announced it will charge £2 a month on its platinum Visa cards and Lloyds TSB recently introduced a one-off £35 annual fee for customers who did not use their cards regularly. He said that between 2001-04, credit card issuers saw profit margins squeezed because of new competitors entering the market. At the same time falling interest rates led to annual percentage rates on credit cards falling. "Since 2004 there has been an increase in bad debts and credit card issuers have increased APRs but not enough to offset defaults," he told the newspaper. © Copyright 2007 by Finfacts.com |
