PDF 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

Contents

Credit card market study: interim report

MS14/6.2

Abbreviations used in this paper

3

1 Executive summary

5

The extent to which consumers drive

effective competition through shopping

around and switching

6

How firms recover their costs across

different cardholder groups and the

impact of this on the market

8

The extent of unaffordable credit card debt 9

Interim proposals on remedies

13

2 Our approach

17

Why did we decide to look into the

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 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

4 Consumer shopping around and

switching

36

How can consumers drive effective

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

November 2015

1

MS14/6.2

Credit card market study: interim report

5 Firms' business models and cost recovery 50

How firms' business models and cost

recovery affect competition

51

How firms recover costs

51

How different products make money and

main behaviours driving profitability

52

Cross-subsidisation

64

Potential impact of the Interchange Fee

Regulation

67

6 Problem credit card debt

69

Why we are concerned about problem credit

card debt

70

Causes of unaffordable borrowing

by consumers

71

Drivers of lending by firms that may be

unaffordable for consumers

73

Scale and nature of problem credit card debt 76

Firms' lending incentives

82

7 Interim conclusions

89

Interim findings

89

8 Potential remedies

93

Key principles for considering remedies

93

Our initial thinking on potential remedies 94

9 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

2 How credit card products are regulated

3 Results from the consumer survey

Appendix 1 to consumer survey ? Note on questionnaire design

Appendix 2 to consumer survey ? Technical Report

4 Switching analysis

5 Firm business model analysis 6 Affordability analysis 7 Review of Price Comparison Websites (PCWs) 8 Review of Terms and Conditions 9 Review of Financial Promotions 10 Account-level data 11 International comparisons

2

November 2015

Financial Conduct Authority

Credit card market study: interim report

MS14/6.2

Abbreviations used in this paper

APR BTs CMA CONC CP EU FCA HCSTC OFT ONS PCA PBT PCWs PSR SME

Annual Percentage Rate Balance transfers Competition and Markets Authority Consumer Credit Sourcebook Consultation paper European Union Financial Conduct Authority High-cost short-term credit Office of Fair Trading Office of National Statistics Personal current account Profit before tax Price comparison websites Payment Systems Regulator Small and medium-sized enterprises

Financial Conduct Authority

November 2015

3

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download