Five forces that will shape the credit card market
By Tom CrossFeb 10th 2016
In 2015, we saw significant changes in the credit card market with new providers and brands entering the market and continuing product innovation. This year is likely to be one of transition for many of the leading card providers who are mindful of the impending shifts in the wider economy. Here, I've put together a list of five factors that will change the credit card landscape in 2016.
1. An end to the balance transfer price war
In recent months, a number of card providers have been waging a balance transfer price war, with a constant battle between them to offer the longest 0% balance transfer period on the market. Several card providers are now promoting cards with 0% interest on balance transfers for more than three years, however, we expect this competition to slow in the coming months, particularly with the anticipated rise in interest rates later in 2016/17.
2. Embracing technology
Many of the largest card providers are now offering contactless payment technology such as Apple Pay on their products. We expect that the rest of the market will adopt similar features for their products in 2016 and continue to embrace new payment technologies. We may even see the launch of smartphone-based eCredit Cards replace the traditional plastic.
3. Better offers for poor credit customers
Generally there has been relatively little product innovation for customers with a limited or bad credit history, with most new offers and card types tested first with more ‘prime’ customers. We are predicting greater product innovation for poor credit and credit builder products in 2016, with an expectation that more card providers will enter this market.
4. Money transfer cards
A couple of providers have started offering money transfer cards to customers. These cards allow customers to transfer money directly into their bank account from the card, with an interest-free period of more than three years for some products. We anticipate that money transfer products will become more popular in 2016 and that a greater number of card providers will be offering products with similar features.
5. Interchange fees affecting the market
Last year, the European Parliament approved a cap on interchange fees (the fees charged to retailers by banks) that will reduce one source of income for the lenders. We have already seen this change affect card providers: Capital One reduced cashback rewards on their cards and Santander increased the annual fee on their 123 credit card from £24 to £36. We expect more card providers to follow suit and make changes to their products.