Credit card firms face shakeout

The UK credit card sector is facing a major shakeout as consumer reluctance to shop around for cheaper deals drives some providers to the wall.

According to a report from business services group PWC, only about six of the UK's 30 credit card providers can expect to survive into the medium to long term.

Credit card firms are being squeezed by the uncertain economic environment, and a lower than expected success rate in poaching competitors' customers through cheaper borrowing costs, the report said.

PWC attributed their failure to attract new customers largely to consumer apathy, although it acknowledged that in some cases consumers' loyalty towards their own credit card firms may have been underestimated.

In a survey, just 5% of respondents said they would consider changing to a different credit card provider in order to reduce their borrowing costs.

Billion saver

"The resistance of many consumers towards changing credit cards has already resulted in the exit of some new entrants from the market," said PWC partner Richard Thompson.

"The highly competitive environment means that the profitability of the credit card industry is particularly vulnerable to economic downturns and increases in unemployment."

According to PWC's calculations, if all British credit card holders were to switch to a company offering a special introductory rate of 0%, they would save a total of £2.5bn between them within six months.

The report found that the average British cardholder now carried about £1,400 in debt on their plastic, 6% more than two years ago.

It also highlighted sharp growth in credit card crime, with the overall incidence of fraud rising threefold during the last four years.