Executive Summary

Consumer credit is supplied by a combination of banks, building societies, finance houses, insurance companies and retailers. Banks dominate the market, frequently securitising their loans through finance companies, making consumer credit a financial instrument exploited by the financial markets.

In most cases, consumer credit is a low-risk asset, particularly when secured against property. Even unsecured credit is checked by credit scoring software before being granted, ensuring that most mainline lenders have low levels of bad debt.

Banks dominate the markets for mortgages, remortgages, personal loans and credit cards. In many cases, banks own the finance houses that offer credit to poor risks. These lenders are also specialists in specific market segments — for example, cars — and can set interest rates and credit terms that maximise the return on credit.

The credit-card market is dominated by two consortia of banks — Visa and MasterCard — and these banks are often members of both consortia. Historically, it has been difficult to enter the credit market unless the new entrant is a Visa or MasterCard member. The UK market has been dominated by Barclaycard (Visa) for many years, but in the 1990s the market became much more competitive as rivals offered better and cheaper cards. With falling general interest rates, the main providers have lost market share and consumer credit through credit cards has become much cheaper. However, the increasing popularity of debit cards — where there is no revolving credit element in the transaction — suggests that the credit card is reaching its limit in the UK.

This has affected non-bank providers such as retailers, whose share of the credit-card market has fallen. The success of generic cards (e.g. Cofinoga and Cetelem) in taking a major share in the EU market has so far not been repeated in the UK, despite the success of Cetelem in conjunction with HBOS.

Regulatory change to moderate interest rates and to ensure that the consumer is fully informed about the implications of credit is likely both at European and UK levels. The deliberations of the Competition Commission, and reports of the Office of Fair Trading (OFT), could lead to legislation that ensures a more competitive market. However, the Competition Commission's report on store cards in April 2005 might fall victim to a General Election. Consumer credit will remain a highly profitable industry, but the immediate future is uncertain.

Price:	£ 799.00 GBP ex VAT (£ 938.83 GBP inc VAT )
Publication date:	30 Apr 2005
Licence period:	365 days

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