Competition in the Credit Card market

Here are some quotes from today's Sunday Business Post

"It is the lack of competition in the credit card market that really stands out"
"Any competitor trying to enter the Irish credit card market may find that hurdles are placed in its way"
-Kathleen Barrington

"The Irish credit card market is clearly uncompetitive"
-Louise McBride

"A price differential of between 9.5% and 19% in credit card interest should not exist in a competitive market"
- Mary O'Dea, Consumer Director, Financial Regulator

This flies in the face of the facts. Here is a list of credit card providers in the Irish market:

AIB
American Express
Bank of Ireland
EBS
First Active
GE Money
Halifax
MBNA
NIB
One Direct
Permanent tsb
Tesco
Ulster Bank

Halifax, NIB and permanent tsb all charge under 10%.

There are no barriers to switching. 7% switched last year alone. If you assume that the 50% who clear their balance each month don't have any reason to switch, that means than the 7% is really about 14% of interest paying customers, which is quite high.

Because three suppliers - AIB, Bank of Ireland and MBNA - account for 80% of the market, it is argued that the market is not competitive. But MBNA has 13.6% of the market and is a relatively new entrant to Ireland - I would guess it's here about 10 years.

If you were an overseas credit card provider, would you want to enter the Irish market? 13 competitors. Half the customers pay off their balance in full. Unsecured lending.

Irish consumers are well served by competition and I am astonished that well informed commentators continue to say the opposite in the face of all the evidence.

Brendan

It could also be argued that one of the principal barriers to competition is the government tax on credit cards which the providers can't be blamed for. This acts as a disincentive to customers switching (avoiding a duplicate tax levy is awkward) or holding multiple cards.

I'd love to have such a churn barrier in my business area.

GeneralZod said:

It could also be argued that one of the principal barriers to competition is the government tax on credit cards which the providers can't be blamed for. This acts as a disincentive to customers switching (avoiding a duplicate tax levy is awkward) or holding multiple cards.

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That's the salient point...the commonly held view is you get levied with two lots of €40 if you try and switch credit card providers.
Plus older people, as with most financial products, tend to stick with their bank (to their detriment!)

Wouldn't the 'Financial Regulator' be better served warning people of the dangers of running up credit card debt rather then whining about non-issues?

Are credit card markets in other States any different?

I agree...50%ish of people not clearing their balance every month is more worrying. I suppose her point is that in a healthy developed market a provider offering 19% would go out of business.

The 19% rate is levied on those who don't qualify for the lower rates. In some case, this may be due to their salary, in others, it could be down to credit history, so that the riskier the customer, the higher the rate. Not much wrong with that.

KalEl said:

First money they've ever made from me I think!

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They get a commission on everything you purchase with the card AFAIK.

GeneralZod said:

They get a commission on everything you purchase with the card AFAIK.

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Do they? I didn't know that. Obviously the retailer's bank gets a percentage of all purchases but who pays MBNA for example?

KalEl said:

Do they? I didn't know that. Obviously the retailer's bank gets a percentage of all purchases but who pays MBNA for example?

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AFAIK There's a separate payment called interchange between the retailer's acquiring bank and the card issuer for every transaction. [broken link removed].

GeneralZod said:

AFAIK There's a separate payment called interchange between the retailer's acquiring bank and the card issuer for every transaction. [broken link removed].

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Interesting and makes sense too. So customers who clear their balance every month do yield something for the MBNA's of this world.
General Zod advising Kal El...peace in our time!

KalEl said:

hit with a €15 late fee by MBNA...bill was due on Tuesday, I paid it on Saturday via AIB and didn't clear until Wed. First money they've ever made from me I think!

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If they never normally make anything from you then the respective rates of AIB and MBNA credit cards are irrelevant. Why not get an AIB card and cancel the MBNA? - then you'll never get hit again in such a situation (and AIB give you a cash turnover bonus, just in case it was some incentive being offered by MBNA that attracted you in the first place).

This thread is to discuss competition in the Credit Card market. Please don't make off topic replies. Please don't start telling and responding to off topic anecdotes. Open a separate thread for them.

Brendan

The issue of Competition in the credit card market is tied up with the issues of competition in the general banking market.

The big issue is that it is virtually impossible to start a new bank to move into such profitable areas as credit cards - and that impossibility is created by the licensing process. For a fuller discussion see and click "competition"

Brendan said:

This thread is to discuss competition in the Credit Card market. Please don't make off topic replies. Please don't start telling and responding to off topic anecdotes. Open a separate thread for them.

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I would have thought that MBNA's penchant for charging fees is absolutely a competitive issue in that the classic AAM position - "it's the rate, stupid" - is not strictly relevant in the case of credit cards.

However, apologies if I was part of the hijacking of the thread. It was done with the best of intentions.

Gulliver said:

T
The big issue is that it is virtually impossible to start a new bank to move into such profitable areas as credit cards - and that impossibility is created by the licensing process. For a fuller discussion see and click "competition"

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How did MBNA do it?

Gulliver

There are 13 competitors in the market already. Three of them are offering very low rates. What more could a 14th competitor offer?

In Thursday's Irish Independent Mary O'Dea, the Consumer Director of the Financial Regulator gave the quote of the week:

"Credit price differentials on cards should not exist".

And in yesterday's Irish Times, the Consumer Correspondent Paul Cullen said in an article on grocery prices:

"...The multiples are engaging in "me-too" pricing for their best-selling items, prompting questions about how much real competition is taking place".

This is like throwing a suspected witch into water. If she floats, it's a sign that she is a witch and must be killed.

Jill Kerby has an article in todays Sunday Times hammering home the same point as Brendan.

The article is entitled "Blames customers not the banks for the high CC charges".

She argues that there is no lack of competition or cost information with credit cards and finishes off the article

"Mary O'Dea (Financial Regulator's Consumer Director) noted that half of us havn't a clue what interest rate we pay on our cards. It's lazy customers who deserve to have their knuckles rapped if they continue to pay the banks such exorbitant interest. O'Dea should direct the consumers to start looking at their own affairs".

It's not like it's rocket science. Go with the cheapest card. If you get a teaser rate for 6 months or a year, then move as soon as soon at the teaser rate expires. I think the banking sector call people who do this Rate Tarts. Quite a compliment when you consider the source.


Murt

In general people should not borrow medium/long term on their credit card since the rate will generally be higher than alternative unsecured or secured loans. Ideally people should use credit cards as a cashflow management tool and not a source of borrowing and so clear their balance before the "free" credit period expires and they incur interest costs. If they do this then all other things being equal (in particular other charges such as forex charges when travelling etc.) it doesn't really matter what the rate is on the card and it doesn't really matter who they go with. As for the Consumer Director claiming that people don't know the rate charged on their card - isn't it printed on every statement issued so if somebody doesn't know they are simply not reading their statements? Surely we don't need further regulation or market intereference to assist those who can't be bothered to perform even this basic task?

Really depends on your definition of competition, doesn't it?

The Herfindahl index, which is a common measure of competition/concentration (albeit not a perfect one!) would say that the market isn't competitive/is highly concentrated. Just because there are many players does not mean the market is necessarily competitive. Inertia can make a market extremely uncompetitive (IMO that's the largest reason for lack of competition in Ireland)

IMO there is a need to encourage competition despite the inertia (in many markets). We ALL lose when a large number of people are inert. The article alone may make people more aware, which can help.