Precious Plastic 2005

Balance transfer offers are costing UK credit card issuers over £1 billion a year in lost revenue and are cannibalising margins.

PricewaterhouseCoopers' latest study of the UK consumer credit market, Precious Plastic 2005, has revealed that issuers are facing a growing breed of 'rate tarts' who will move perpetually from issuer to issuer to finance their debts at no cost.

Key highlights:

• Issuers will become increasingly more selective about the customers they offer balance transfers to.
  
• New regulations concerning consumer credit could cause products using a risk-based pricing approach to appear more expensive than before.
  
• PricewaterhouseCoopers expects the non-prime market to be one of the key sources of growth in the consumer credit market. Lending to higher risk customers is still not well developed in the UK market and it is anticipated that the industry will increasingly focus on increasing penetration of the 8 million adults in the UK that could be classified as non-prime. PricewaterhouseCoopers anticipates that the number of adults holding a credit card will increase by a further 3-4 million or 10% over the next few years, which will partly be due to growth in non-prime lending.
  
• The introduction of chip and PIN could result in a consolidation of cards used by consumers, due to the need to remember, or change, multiple PIN codes. The number of cards in issue is expected to continue to increase, although the number of cards actually used by consumers will decline.