Study finds more people prefer plastic money |
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Published
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Fri, 19 Aug 2005 19:05
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LONDON: We British are switching over to cards as research indicates that spending through cards constituted almost two thirds of the households' total expenditure. A study, titled U.K. Plastic Card Report, by market research and database firm Datamonitor revealed that the total value of transactions made through credit, debit, charge and store cards in Britain stood at 436.47 billion pounds in 2004, 11 per cent higher than in 2003.
These transactions constituted 60 per cent of household spending, compared with 44 percent in 2000 and just 26 per cent in 1995.
Debit cards are favourites, the report found. Spending through debit cards rose by 17 per cent in 2004 (288.13 billion pounds), while spending through credit cards increased by 9 per cent (117.97 billion pounds) and charge cards accounted for a 5 per cent increase (26.07 billion pounds).
Datamonitor said competition among credit card providers resulted in a reduction in the average interest rates to 16 per cent in March this year from 18.6 per cent in June 1999.
However, the lower interest rates are creating debt traps for the average Britishers as there is tendency to spend using credit cards and then the inability to meet payment commitments because of harder times.
Lower interest rates are also affecting the profitability of the card providers. The report's author Kieran Hines said offering Annual Percentage Rate (APR) below the base rate is costly for the card issuers. "This has seen issuers introduce fixed fees for balance transfers to protect their margins."
The report said the rate tarts, who shift their outstanding balances between cards to take advantage of introductory offers, had also hit profitability. There is speculation that low introductory APR may be withdrawn.
Hines said consumers are nevertheless more comfortable using cards for both day-to-day transacting and borrowing, and this continues to drive growth in the market. "Cards are swiftly becoming the dominant payment method of choice for a growing number of consumers, continuing to replace both cash and cheques."
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