Are credit cards facing a midlife crisis?

06 February 2012 16:32:06

Credit cards - are they going out of fashion?

The credit card industry is facing something of a midlife crisis, if experts at PwC are to be believed. The company's latest annual 'Precious Plastic 2012' report reveals that Brits still have some of the highest levels of household debt in the world - households are typically saddled with £8,000 of debt, enough to get you most of the way on a round-the-world trip - yet at the same time there are signs that many are doing their best to reduce their borrowings.

PwC's research also suggests that for those who do still rely on credit, traditional credit cards have started to fall out of fashion. The nation's total outstanding credit card balance fell by 5% in 2011, with card borrowing declining at a faster rate than other forms of unsecured borrowing, suggesting this is not solely the result of a recessionary hangover.

Payday loans take larger market share
At the same time, despite large amounts of negative press, payday loans are now becoming increasingly mainstream - a trend that was highlighted by research from insolvency trade body R3 in December 2011, when it revealed that 3.5m Brits were considering turning to the controversial loans.

Simon Westcott, director of PwC, revealed: "Consumers discarded nearly 1m cards in 2011, taking the number of credit cards in circulation down to levels not seen for almost a decade. Mainstream lenders need to be aware that what may have begun as a last resort [e.g. payday loans] could be an enduring relationship as consumers are pleasantly surprised at the convenient and innovative service they receive from these smaller, more agile providers."

Digital payments capture young people's imaginations
Even among young people, who might previously have been expected to turn to credit cards over time, the future for this type of plastic seems uncertain. According to Mr Westcott, the increasing preference for debit cards among the younger generation, along with growing interest in mobile payments and other digital alternatives, could force the credit card into "an ever-decreasing market".

However, all may not be lost for the credit card industry if it makes a concerted effort to move with the times. Already, the market is full of innovative cards offering lengthy balance transfer periods, reward schemes and cashback incentives. But providers may need to do even more to maintain their customer base in an ever-changing payments landscape. They must realise that they will need to adapt their product offerings to the needs and habits of young borrowers, rather than expecting them to change their own spending patterns - mobile payments could be just the start.

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