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

We make all responses available for public inspection unless the respondent requests otherwise. We will

not regard a standard confidentiality statement in an email message as a request for non-disclosure.

Despite this, we may be asked to disclose a confidential response under the Freedom of Information

Act 2000. We may consult you if we receive such a request. Any decision we make not to disclose the

response is reviewable by the Information Commissioner and the Information Rights Tribunal.

All our publications are available to download from .uk. If you would like to receive this

paper in an alternative format, please call 020 706 60790 or email publications_graphics @.uk or

write to Editorial and Digital Department, Financial Conduct Authority, 25 The North Colonnade, Canary

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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