Reality 1: The credit card's mid-life crisis
Nearly half a century since the credit card was first introduced, this once fast-growing market is struggling to navigate a mid-life crisis. The industry faces the dual challenge of a prolonged contraction in the size of the market and a broken underlying economic model. The market contraction is not simply the result of cautious consumers paying down their debts; the industry faces significant competition from other products (both established and emerging).
Moreover, PwC’s Credit Confidence Survey reveals a clear preference among younger consumers for other payment types, underlining the industry’s struggle to reinvent itself for the digital age. Underlying issues with the economic model are being masked by widening spreads, generated by low funding costs and rising interest rates charged to consumers. When funding costs eventually rise, regulatory and market pressure will make it difficult for issuers to simply pass on the cost to customers through further increases in annual percentage rates (APR), leaving the industry with the need to find other ways to generate value. Something needs to give.
In the short term, we expect to see issuers focused on taking out cost; however, in the longer term business models and customer propositions will need to fundamentally change to provide a more sustainable future for the industry.
