Is The Credit Card Market About To Contract?

Thrifty Brits are heeding the lessons learnt during the recession as they seek to clear off their existing debts

. According to research from market analyst Datamonitor, one of the results of this will be a contraction of the credit card market.

This could be a blow to consumers looking to get a new credit card but is it realistic?

Here are some more figures: the group predicts that the total value of credit card transactions will drop by 2.7% this year - in monetary terms a fall of 3.1 billion, to 110.59 billion. The market has only just recovered from the record slide of 7.8 billion in 2009.

The market isn't expected to return to growth until 2011. Even then, the total value of transactions is only expected to rise to 113.37 billion, still a lot down on the peak of 121.4 billion reached in 2008.

Transaction numbers aren't the same as the cards you see when you do a credit card comparison, however.

There has also been a significant drop in the number of cards issued - 10% in 2009. This equates to a fall of over six million cards from 2008. A spokesman from Datamonitor said that issuers are aggressively acting to reduce the number of dormant accounts in an attempt to protect themselves.

Again, though, reducing dormant accounts doesn't necessarily have an effect on consumers applying for new credit cards.

Datamonitor also found a fall in the outstanding balances people had on their cards, as well as the value of the average transaction, which dropped to 62 in 2009. This was down from 64.90 the previous year and it is expected to fall further in 2010 to 60.70.

This may explain the popularity of credit cards such as the Halifax All in One credit card which combine the ability to pay off debts with deals on purchases.

During a majority of 2009 the total value of transactions was between 1 billion and 1.5 billion lower than it had been a year earlier.

A financial services analyst at Datamonitor, Gilles Ubaghs noted that while credit card transactions had seen a strong decline as a result of the recession, the fall had been less drastic and more stable compared to other forms of consumer credit.

Personal loans and motor finance loans fell by much more and there are still plenty of bad credit rating credit cards available, although - these too - are more difficult to get hold of.

In a separate report an analyst from the company Defaqto stated recently that new credit card laws that had been brought in were likely to benefit credit card customers in the UK.

All in all, the credit card market may be about to contract but this might affect those with credit cards already more than those applying for them now.

by: Justin Schamotta

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