Recession to drive store card comeback

PricewaterhouseCoopers’ Precious Plastic 2010 report found it is “more important than ever for retailers to offer their customers financing options”, as more traditional forms of credit dry up as a result of the banking crisis.

PwC consumer finance team partner Richard Thompson said retailers will be in a perfect position to offer credit via store cards as banks limit their supply of credit due to bad debts, the cost
of lending and new legislation.

He said: “There will not be enough credit to go around when the economy picks up. Many consumers will find it difficult and this will affect their ability to spend, which will affect big-ticket retailers particularly.”

But he said retailers have an opportunity to prop up spending by offering store cards. “It’s important that retailers can help the customer buy,” he said.

However, store cards have come under fire amid the banking crisis, and last month the Government launched a consultation into credit and store card regulation. Proposals include banning retailers increasing borrowers’ credit limits and interest rates and also forcing them to increase the minimum monthly repayment, therefore potentially making them less attractive to shoppers and
therefore retailers.

Thompson said store cards took off in the early 1990s but then retailers began concentrating on credit cards at the start of this decade, linking up with banks.

But after “many unsuccessful” schemes, he said it is “back to basics for retailers”, and forecast many more store groups will launch store cards in the wake of the recession.

He said bigger retailers with strong enough brands have a “golden opportunity” to take advantage of the weakness of UK banks by launching the “full suite” of financial services.

“Consumers don’t have a lot of trust in banks,” he said. “Some retailers’ brands, like Tesco’s, have sufficient stretch to take them on.”