Credit card market study: interim report
Financial Conduct Authority
Credit card market study:
interim report
November 2015
Market Study
MS14/6.2
We are asking for comments on this Interim Report by 8 January 2016
You can send them to:
Patricia Bascunana-Ambros
Competition Division
Financial Conduct Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Email:
creditcardmarketstudy@.uk
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Wharf, London E14 5HS
Credit card market study: interim report
MS14/6.2
November 2015
1
Contents
Abbreviations used in this paper
3
1
Executive summary
5
T he extent to which consumers drive
effective competition through shopping
around and switching
6
ow firms recover their costs across
H
different cardholder groups and the
impact of this on the market
8
The extent of unaffordable credit card debt
9
2
Interim proposals on remedies
13
Our approach
17
hy did we decide to look into the
W
credit card market?
17
Scope of the study
18
Why are we publishing an interim report?
19
The evidence gathered to support our analysis 20
3
4
Market overview
22
Consumers of credit card products
22
Market segments
23
Credit card products
24
Providers of credit card products
30
Acquisition channels
32
Firm strategies
34
Changes to the market
35
Consumer shopping around and
switching
36
ow can consumers drive effective
H
competition through shopping around
and switching?
37
Understanding and comparing credit cards
37
Shopping around
40
Analysing switching
44
Why consumers switch
45
Why some consumers do not switch
47
Impact on firms of shopping
around and switching
48
Financial Conduct Authority
MS14/6.2
5
6
Credit card market study: interim report
Firms¡¯ business models and cost recovery 50
ow firms¡¯ business models and cost
H
recovery affect competition
51
How firms recover costs
51
ow different products make money and
H
main behaviours driving profitability
52
Cross-subsidisation
64
P otential impact of the Interchange Fee
Regulation
67
Problem credit card debt
69
hy we are concerned about problem credit
W
card debt
70
Causes of unaffordable borrowing
by consumers
71
rivers of lending by firms that may be
D
unaffordable for consumers
73
Scale and nature of problem credit card debt 76
7
8
9
Firms¡¯ lending incentives
82
Interim conclusions
89
Interim findings
89
Potential remedies
93
Key principles for considering remedies
93
Our initial thinking on potential remedies
94
Next steps
97
Further work planned
97
Final report
97
Stakeholder views
97
Glossary of terms used in this document
98
Annexes
1
Feedback on Terms of Reference
5
Firm business model analysis
2
How credit card products are regulated
6
Affordability analysis
3
Results from the consumer survey
7
Review of Price Comparison Websites (PCWs)
Appendix 1 to consumer survey
¨C Note on questionnaire design
8
Review of Terms and Conditions
9
Review of Financial Promotions
10
Account-level data
11
International comparisons
Appendix 2 to consumer survey
¨C Technical Report
4
2
Switching analysis
November 2015
Financial Conduct Authority
Credit card market study: interim report
MS14/6.2
Abbreviations used in this paper
APR
Annual Percentage Rate
BTs
Balance transfers
CMA
Competition and Markets Authority
CONC
Consumer Credit Sourcebook
CP
Consultation paper
EU
European Union
FCA
Financial Conduct Authority
HCSTC
High-cost short-term credit
OFT
Office of Fair Trading
ONS
Office of National Statistics
PCA
Personal current account
PBT
Profit before tax
PCWs
Price comparison websites
PSR
Payment Systems Regulator
SME
Small and medium-sized enterprises
Financial Conduct Authority
November 2015
3
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