Why credit card companies are getting nervous
Credit card companies should be nervous right now but only to some extent. Credit cards are indispensable for many things like booking hotels and tickets, online purchases and a credit card is always handy but I think there are a few things which will make credit card companies a little less sure of themselves.
Firstly, interest rates are low at the moment so credit card companies are going to have to justify their 10 percent plus interest charges on loans. Secondly, a lot of people are making cuts in order to cope with the current economic climate.
Because we have made savings elsewhere like on the mortgage, due to lower interest rates, many people are using their debit cards instead of the credit card.
Even if bank charges go to 5 percent on an overdraft, this still makes a debit card purchase worth while compared to paying the credit card company higher interest if you go overdrawn by using the debit card.
Debit cards are just as easy and accepted in most places in the same way as a credit card and most people would rather use money in their accounts right now than accrue further debt – especially to a credit card company.
Credit card companies have done very little to engender loyalty. We were encouaraged to switch between credit card companies by the companies themselves as they vied for our business when the going was good and interest rates were high. They showed little loyalty to existing customers and still charged them high interst rates on purchases whilst offering new customers incentives. So, we lost our loyalty and switched to different companies as different offers were made.
So, credit card companies do not have a loyal base of clients. Instead they have a resentful base of some clients who are tied into them because they owe money and desperately want to clear their debts.
While clearing their debts, clients are switching to low interest loan companies and switching away from credit card use.
It is too early to say exactly how this will affect the credit card companies in the longer term but already there are signs that credit card companies are suffering (poor things). Yet, while there is sympathy for a man who loses his job because of the credit crunch, little is felt for the massive, faceless conglomerates who happily took our money, encouraged debt in the first place and charged extortionate rates of interest.
So, credit card companies are getting nervous and, in my opinion, quite right too.