Competition Commission sets out store card concerns
Views sought on areas of concern
The Competition Commission has moved its probe into the UK store card market on by setting out its areas of concern and inviting comments.
The commission areas of potential concern include the view that there may be to little competitive pressure on APRs and other card charges. It has also highlighted possible concerns about the competitiveness of the insurance services such as payment protection that are sold with store cards.
Commission chairman Professor Paul Geroski said:”After examining a huge amount of evidence in this inquiry to date, we think there are some areas of concern that we need to explore further and this document focuses on these as well as inviting views from all parties.
“We are far from making up our minds, but we are concerned that there may be limited competitive pressure on APRs and other charges and that retailers and credit providers may benefit from the level of APRs to the detriment of consumers.
“Consumer behaviour may contribute to this because consumers appear insensitive to these charges. There may also be a lack of choice for consumers in relation to the insurance services sold with the cards.
“There has been considerable activity in the ‘upstream’ market since we started this inquiry, with new entrants and contracts being renegotiated in favour of retailers but we need to consider whether this has translated into any beneficial effects for customers.
“We also need to consider further whether the nature of the store cards business is leading to outcomes such as excessive profits for providers and APRs being set at a similar level and not responding to changes in the base rate or credit cards’ lower APRs.”
Reatilers, card issuers and consumer groups are being asked to respond to by the end of January, with the commission planning a further round of hearings during February.
It has identified two interdependent markets: an ‘upstream’ market for the provision of store card credit and related services to retailers by credit providers, and a ‘downstream’ market for the provision by credit providers and retailers jointly of store card and related services to the retailer’s customers.
At the upstream level, the CC is concerned about two possible features. That retailers and the credit providers who supply their store card services appear to have little incentive to cut their APRs, which may lead to price matching, and that the provision of store card insurance services to appears to be subject to little, if any, competitive pressure.
It believes other features that might prevent, restrict or distort competition at the upstream level are the structure of the store card sector, in which the four largest store card credit providers have more than 90 per cent of the market, possible barriers to entry, and switching costs, which may deter some retailers from switching credit provider.
At the downstream level, the commission is concerned that because store cards are marketed on the basis of the retailer link and customer benefits which they offer, customers may be unaware of, or indifferent to, the APRs on those cards. This may mean that they are not subject to sufficient competitive constraints;
Customers appear insensitive to APR levels and other charges and etailers have little incentive to drive down APRs. Customers also have little choice of insurance types or packages taken out with store cards.
The commission is also considering whether the profits of one or more store card credit providers are excessive, why APRs and insurance rates are very similar across the store cards of many different retailers, why store card APRs have shown little responsiveness to changes in the base rate, and why the pricing model for store cards is such that those who pay interest on their balances and other charges bear most of the costs of the store card operation.
