Expect credit card charges to rise

January 9, 2007

Pricewaterhouse Coopers are warning us that credit card providers are set to get tough on its customers in an attempt to recoup £1bn.

The most likely way to do this will include higher charges and narrowing opportunities for people to solicit the 0% deals.

According to Pricewaterhouse Coopers’ (PwC) annual Precious Plastic report the estimated lost revenue to the industry of balance transfers is approximately £600million per annum.

The industry is split on their opinion of how the introduction of annual fees will affect their customers’ loyalty. One group are not concerned if a section of customers who they feel are ‘unprofitable’ to them anyway choose to go to another provider, while on the other hand, some credit card companies are concerned that if customers go elsewhere they may lose out on an opportunity to try to sell their other products to these people and may incur a loss of revenue in other areas.

One of the report’s contributors-a Mr.R.Thompson admits he is struggling to see just how banks can possibly absorb £1bn in lost revenues. According to him, he believes we will witness a ‘waterbed effect’, which is when charges are restricted in some areas only to reappear in another guise somewhere else.

Mr.Thompson also reckons that each individual card user would need to pay around £35 on average to allow lenders to come anywhere close to retrieving anywhere near the £1bn losses reported. If credit card companies were to try to do this purely on interest rates alone, then APRs would need to increase by approximately 2 percentage points.

According to Mr.Thompson, we are already witnessing movement in this area. In April 2006, the Office of Fair Trading declared charges be capped at £12 and as a direct result 19 credit card providers raised their rates. He says ”Ultimately, the impact of regulation could hasten the return of annual charges as the norm - something the industry has so far managed to do without.”