What is the Market Study into Credit Cards?
On 3 April 2014, the FCA confirmed that it will formally launch a study into the credit card market.
The market study will help the FCA, working in conjunction with the industry, decide what actions, if any, are needed to make the credit card market work better for consumers. There are no pre-determined terms of reference or outcomes for the study. Research carried out by the FCA on how the market is working for consumers found that while there appeared to be strong competition in the credit card market, consumers seemed to focus on particular card features that may not represent long-term value.
This market study is part of the FCA’s broader work on consumer credit themes.
What is the issue?
Now that the Financial Conduct Authority (FCA) has taken over the regulation of credit cards, officials want to look at whether the market is working effectively for consumers -- in particular, those in difficult financial situations.
What we think
We know from a variety of different data sources that the level of churn in the market is around 15% – 20% a year. This is the proportion of customers who take out a new card in any year. This measure indicates good levels of competition in the market, and suggests that consumer can easily access attractive deals. This compares to a level of churn in the telecommunications sector of 11 % pa.
We also know that there are a wide range of credit card issuers operating in the market, each using different business models and providing a wide range of products and offers. Together this forms a competitive environment in which customers can find products that suit their individual circumstances
What we are doing?
We are waiting for the terms of reference for the Market Study to be finalised. The FCA has committed to meeting with the industry and consumer groups before they publish the final terms of reference and throughout the subsequent process.
We are already helping the FCA to collect data, with a view to reducing the reporting burden on firms, and ensuring that the regulator has the data it needs. A number of credit card firms have volunteered to help the FCA with a 12-week project to explore the best way for the industry to collect and analyse firm data. Such information is essential to understanding the market and how consumers use credit cards. UK Cards will continue to contribute evidence and insights to assist the regulator.