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Last Updated: Wednesday, 7 September 2005, 23:00 GMT 00:00 UK
Demise of the credit card?
By Ian Pollock
BBC News personal finance reporter

Credit cards.
Credit cards are losing their popularity
The amount of money spent on credit cards may fail to grow next year, according to the Association for Payment Clearing Services (Apacs).

If so, it will be the first time this has happened since they were first issued in the 1960s.

Apacs says the growth in credit card spending has been slowing down fast.

And it claims their users have become more cautious because of bad publicity about the nation's mounting level of personal debt.

Myths punctured

The review by Apacs punctures a number of myths about spending on plastic cards.

93% repaid in a year
73% repaid in a month
17% borrowed at 0% interest
Source: APACS Review of 2004

With personal debt rising above the one trillion pounds level, there have been many stories in the media about how the country is apparently drowning in debt, led by profligate spenders waving their credit cards under the nose of every retailer in the high street.

The truth is rather different.

Of all credit card spending in 2004, 93% was repaid within the year.

And 73% of spending was by those who repaid in full within the month.

"The bulk of credit card holders are not borrowing on their cards," says Paul Rodford of Apacs. "Only a minority of people are irresponsible borrowers."

Cash machines

There has been widespread concern about the rapid growth in cash machines which charge a fee for withdrawals.

The suggestion has been that people are being duped into paying for their own cash by unscrupulous cash machine operators.

But the figures tell a different story.

Last year bank-owned cash machines dispensed on average 13,000 per day. But the average independent cash machine gave out just 800 per day.

Free machines accounted for 95% of all transactions by number and 97% by value.

Changing trends

There has been a relentless rise of the debit card at the expense of credit cards, cheques and even cash.

People distinguish quite clearly between their cards depending on the type of transaction
Chris Jones: APACS payments expert

Debit card use is currently going up at a rate of 20% a year and they now account for two thirds of all spending on plastic.

So less than 20 years after they were first introduced, they now far outstrip their older counterpart, the credit card.

But with spending on credit cards expected to rise by just 3% this year - down from last year's rate of 8% - Apacs says it will not be surprised if this growth comes to a halt altogether by the end of 2006.

The one area where credit cards still hold sway is online shopping.

Nearly three quarters of people prefer to use them for ordering goods because they offer some compensation if things go wrong.

"We believe the unique consumer protection afforded by credit cards, such as additional cover for lost or damaged goods, is a key driver in this pattern," says Sandra Quinn of Apacs.

Plastic is king?

Cash has also been dwindling in the face of the mighty debit card.

The value of cash transactions was outstripped by plastic card transactions for the first time last year - by just 1 billion pounds.

The rise of debit cards is being matched too by the fall in the use of cheques.

Once upon a time you could not buy anything in a shop without being caught in the queue behind someone laboriously writing out a cheque.

That is pretty much a thing of the past.

Cheques are now a niche product

A few days ago the Shell oil company announced that it would no longer accept cheques in its petrol stations.

Between 1990 and 2004, the number of cheques processed in the UK each year almost halved to 2.1 billion a year. And just over half of those were written by individuals rather than companies.

Of these only 19% were used in shops while 13% were used to settle credit card bills, a further 19% were for regular bills such as utility and another 17% were paid to businesses, for example plumbers.

"Cheques are becoming a niche product," points out Mr Jones.

"Personal use has been where the decline has come. Their biggest use is for business to business transactions."

Rate tarts

Competition among credit card companies for new customers has seen the creation of so-called rate tarts - people who move debts every six months or so from one interest free deal to another.

How much credit card lending to do they account for? Quite a lot it seems.

Apacs thinks that in 2004, 17% of all borrowing on credit cards was due to balance transfers.

That suggests that rate tarts borrowed 21 billion pounds that year - and nearly all at 0% rates of interest.

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