'Slump to melt most plastic firms'

MOST credit card providers will struggle to survive an economic downturn, a report claimed today. PricewaterhouseCoopers predicts that of the 30 to 40 credit card providers currently operating only seven or eight will still exist by 2010.

The accountancy firm said the number of groups providing credit cards had expanded in recent years, leading to a 'dash' for market share with new entrants offering low interest rates, reward schemes, and high credit limits to attract customers.

But PwC warned that if there was an economic downturn these groups were likely to be more vulnerable to people who were unable to pay their balances, which established providers would be better able to cope with.

Card providers were also under increasing pressure to reduce the fees which they charge shops each time they process a credit card transaction. These fees are the only source of income groups get from the 50% of customers who clear their balance in full each month, and any reduction in the fee would hit their profits.

PwC said firms may be forced to reintroduce annual fees and reduce reward schemes, which often attract people who pay their balance in full each month, in a bid to combat this drop in income.

'Credit card providers must focus on value generation to succeed in today's market,' said PwC spokesman Richard Thompson. 'Too many are focusing on gaining market share without generating value for their shareholders. Credit cards are a scale business and management teams must have strategies in place to reflect this.'

Firms would also have to focus on recruiting customers who would generate better returns, and may follow the current trend in the US of targeting people with a low credit rating who would normally have trouble getting a credit card.