Interest-free credit cards: on the way out?

interest-free credit cards: Interest-free credit cards on the way out - at Moneyweek.co.uk - the best of the week's international financial media.

Could the days of the card-hopping rate tart' be numbered? According to a recent survey from PricewaterhouseCoopers (PwC), credit-card users who shift their debt around to take advantage of 0% balance-transfer offers are hitting the card companies' profits to the tune of £1bn a year. As a result, card issuers are likely to become more selective about who they offer deals to and to work harder on customer retention. More issuers are expected to follow the recent example of Barclaycard, which introduced a 2% balance transfer fee capped at £35 for those wishing to take advantage of its year-long 0% balance-transfer deal. Firms could also begin to reject applications for credit from consumers who jump from card to card. But there's better news for more profitable customers, says PwC: "There is likely to be a targeted decline in the APRs charged to some borrowers to prevent other lenders from cherry-picking' the most profitable customers." And reward schemes with decent benefits, such as gym membership or airline tickets, could also become more common.

Yet it's still much too early to "write the 0% obituary", says Stuart Glendinning of Moneysupermarket.com. The credit-card market remains extremely competitive, with more than 50 mainstream cards offering 0% debt to anyone with a reasonable credit score. What's more, even if we are becoming increasingly savvy about the deals on offer, our appetite for the "precious plastic" shows no sign of abating. Britain is now the only country in Europe to have more cards than people (67 million) and accounts for almost two-thirds of Europe's credit-card transactions. About a third of £180bn of unsecured consumer debt in the UK is attributable to credit cards, and lending grew by 87% in the five years to June 2004, says PwC.

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