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 £650, which is loose change from the qualifying £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 £402.4 million in 2003, according to the Association for Payment Clearing Services (Apacs), although that figure is down from £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 £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 £2.5 million in 1994 to £116.4 million in 2003.
This epitomises the shift in how we manage our money. Purchasing holidays, cinema tickets or even groceries calls for a reliance on plastic, of which debt has become an integral part. Notes Charles Adriaenssens, a director at NOP World Financial: 'There used to be a stigma associated with being in debt that isn't there any more.'
The challenge for credit card companies is to refresh their business models. Within the EC, retailers complain about the 1% transaction charge they have to pay credit companies: they want it reduced to 0.6%, which would bite into this revenue stream. And staying competitive costs the credit card companies dearly, particularly when 44% of cardholders settle 100% of their monthly balance.
Experian estimates that it costs £100 to take on a new cardholder. With each new customer, the credit card companies must yearn for a certain qualified recklessness that would see balances not paid off in full, or on time. In short, a return to an era when customers weren't so savvy.
TOP 10 UK CARD ISSUERS 2003
(MILLIONS OF CARDS)
Lloyds TSB 7.4
Capital One 3.0
Marks & Spencer Money 2.1
Co-operative Bank 1.5
PAYMENT CARDS IN EUROPE (million)
Austria 2.4 7.4
Czech Rep 0.05 4.5
Denmark 0.7 3.3
France 4.2 39.4
Germany 17.1 103.1
Ireland 3.3 1.1
Italy 23.5 25.5
Netherlands 4.7 21.1
Poland 0.6 12.7
Portugal 2.7 13.9
Spain 23.8 27.5
UK 59.0 60.0
There are over 30m credit cardholders in the UK, with an average of 2.2
cards each. The average monthly balance per cardholder is £1,764.
ANNUAL SPEND PER CREDIT CARD IN EUROPE (EUR)
Czech Republic 924
UK CREDIT CARD FRAUD 2003 (pounds m)
Cardholder-not-present £116.4 +6
Counterfeit card £106.7 -28
Lost and stolen £106.1 -2
Mail non-receipt £43.4 +17
Identity theft £29.7 +44
POSH CARDS - WHAT YOU NEED AND WHAT THEY COST
Stratus Rewards Card Invitation only + annual fee: $1,500
Amex Centurion Card £100,000 salary + annual fee: £650
Halifax Carbon Card £75,000 salary + annual fee: £175
NatWest Black Card £70,000 salary + annual fee: £250
Lloyds TSB Black Premier Mastercard £60,000 salary + monthly fee:
The number of Platinum and Gold charge and credit cards in the UK rose
from 6,924 in 1999 to 19,226 in 2003. Premium cardholders spend a total
of nearly £20m a year on their cards.
UK DEBT PAYMENT BY REGION
(% OF CARD BILLS PAID IN FULL EVERY MONTH)
North West 35
East Midlands 42
National average 44
South West 52
South East 53
East Anglia 54
West Midlands 59
SOURCE: MORGAN STANLEY.