Europe squeezed on credit

THE ballooning number of credit cards on issue in Australia and the resultant rise in personal debt may have led to a tightening of legislation in this country, but the market in Europe is facing concerns of an entirely different nature.

Such is the lack of interest in credit facilities in Europe that the banking sector is preparing to combat a major challenge.

A new report found that continental European banks would need to rethink and revamp their plastic card business if they wish to retain current revenues.

The Datamonitor report Payment Card Innovations for Europe says the European market is sitting back while new banks from the US and UK are gaining a foothold.

“Past inertia towards innovation has left many European banks facing strong competition from consumer credit specialists and from US and UK market entrants,” the report says.

The UK payment card market is by far the largest in Europe. The total number of bankcards in the UK was 112 million at the end of 2001, five million more than in Germany. In per capita terms, the UK has 1.9 bank cards for every citizen, however in other European markets this lies between 0.7 and 1.3 cards.

While credit cards have gained widespread acceptance in the UK, European banks have continued to issue debit cards and pay-later cards without credit facilities.

“Because not all European banks offer card-based credit, they miss out on large interest revenues on cards,” the report says. “They continue to make up for this by charging consumers annual fees.”

In Australia, the opposite is true.

The Reserve Bank of Australia last year issued changes to credit card schemes aimed at promoting greater transparency, efficiency and competition in the payment systems to tackle the growing amount of outstanding credit card debt.

According to a PricewaterhouseCoopers report released in September 2002, the level of outstanding debt has grown from $5 billion in 1994 to more than $20 billion. The Australian Bureau of Statistics estimates that around 35 per cent of cardholders pay interest.

However, for European banks these figures are just a dream.

The Datamonitor survey says changing consumer attitudes towards credit cards will be a huge task.

“The straightforward option of copying UK practice by replacing annual fees with new revenues from card-based borrowing in fact amounts to a Herculean task,” it says.

“There are widespread consumer fears with regard to bank card borrowing in most European countries. This suggests that only a gradual approach to make consumers borrow on cards will be possible.

“However, most European banks have not even taken the first step. They have stuck to their tried and tested card propositions for far too long, widely underestimating the potential for innovation that does exist with consumers on the continent.”

In the meantime, other international banks are walking in and offering credit facilities and making it even more difficult for European banks.

Working on young adults who are more accepting of change is what is required, according to Datamonitor.

Several banks are leading the way by marketing products efficiently towards young adults. Dexia, for example, has a dedicated youth bank called Axion in Belgium, communicating on a par with youngsters between 12 and 24.

Loyalty programs, website strategies and card design can all make the use of credit cards seem more appealing to the market, the report says.

“Relatively simple marketing tools like card design can make a world of difference with consumers,” it says.

“This is because consumer identification with the card is one of the key drivers for sales.

“La Caixa in Spain and Banca Sella in Italy understand this well.

“These banks use simple design features like choice of colours, pictures and card themes to induce a feeling of personalised treatment with consumers.”