The credit card market has changed significantly over the past few years and it is now characterised by fierce competition amongst providers and a plethora of 0% interest offers, along with increasingly credit-savvy consumers who are more than willing to shop around for the best deal, with some effectively using credit cards as a form of longer-term cheap borrowing.

The credit card market is still evolving. Whilst the debit card market saw steady growth in 2007, the volume of credit cards in issue declined for the second year in a row. However, there is a divide in the market. Whereas some consumers have cut back on credit card usage and have adopted a more cautious approach to spending, opting to use the money in their current account via debit card to cover living expenses, others are almost at breaking point, with over 4 million people having used their credit cards to pay their rent or mortgage in the past 12 months.

Debit card users are also becoming more active in terms of switching, with the five major high street banks having lost 5 percentage points in market share over the past 12 months. As consumers are squeezed further by the rising cost of living, it is likely that the more financially engaged amongst them will review the value for money provided by their current accounts and may switch providers to give them access to features like improved AERs.

This report covers these key issues, as well as giving an overview of the market environment affecting both the credit and debit card markets. Drawing on industry data, trade research and exclusively commissioned consumer research, Mintel examines the issues of over-indebtedness, the impact of the credit crunch and switching behaviour. The report also assesses marketing activity in what has traditionally been a high-spending sector of the financial services market.

Main issues

Increasing debt levels and the increasing cost of living have led to a divide in the market: whereas some consumers have been paying off what they owe, others have become increasingly reliant on credit to fund basic living costs like mortgages and rent.

Many consumers are reining in their spending, with an inevitable impact on demand for credit.

There are signs that the credit card market is becoming more settled – Mintel’s consumer research shows that people are generally happy with their existing credit cards and that switching intentions have reduced.

The number of people that have a debit card surpassed the volume of credit cards in issue in 2007, with the latter seeing a decline for the second consecutive year.

The ‘credit crunch’ has had a significant impact on the market. The amount of credit available to lend to consumers has been reduced, caused by a lack of trust between providers and unwillingness to lend between financial institutions.

In addition, consumer trust in financial services organisations has been severely dented, with the highly publicised downfalls of a number of industry stalwarts.