Bank Credit Cards and Store Cards in the UK - Competition Needed

The fierce competition in the credit card industry we got so accustomed to hear about every day seems to be a vital remedy for the stagnation in the sphere of retail store cards in the UK. The stagnation is expressed in the stable inflated annual percentage rates which are gradually disappearing from the bank credit cards.

The milder practices of credit card companies are the direct result of the great number of card issuers which, struggling for extended market, began to offer lower rates and no annual fees. It is quite a different situation with store cards issuers and holders.

So, let's try to understand why retail store cards are so much more expensive and uncompetitive than regular UK bank credit cards. It's been some time already since credit card companies changed their policies towards being more consumer-friendly.

A greater transparency of the credit card fine print, the explanation of interest rates, grace periods and balance transfers led to the customer's improved knowledge on credit cards and thus their ability to choose a most suiting product.

It resulted in a healthy competition, general reduction of APRs and lots of incentives like credit card rewards and freebies.

So far, UK store cards market cannot demonstrate the same level of competition and sparing rates on its cards. The matter is that store card issuers and lenders enjoyed protection from competition and so could keep the rates as high as possible.

When the figure reached as high as 30% as compared to 15% to 20% charged by a regular Visa, MasterCard or American Express, it stirred some concerns with the UK Competition Commission.

The fact that UK store card holders were hardly sensible of the interest rates on the card they signed up to also allowed the issuers to continue their harsh practices. And the situation where shoppers were unfairly overcharged ?100m a year forced the UK Competition Commission to think of a legislation that would make store card providers more consumer-friendly.

The Commission urged the providers to give better explanation of the store card rates, inform customers about late payment fees and peculiarities of the payment methods. What was their suggestion? The Commission was fairly sure that if customers became more educated - the goal already achieved by some of the major credit card companies and banks - they would be able to choose.

And a greater choice implies competition. As a result, store card issuers would have to reduce the rates to preserve customers and that is exactly what has happened.

Store card holders today are wiser and more exact when taking consumer credit on a retail store card. They are enjoying lower APRs on their cards and better transparency of the credit card statement and fine print.

So, the competition is evidently on its rise. What's more, it has been observed by the Finance and Leasing Association that there is a move to store branded credit cards that give customers special discounts on the brand they choose and at the same time raise revenues both for the store and the credit card company cooperating with it.

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