Chaplin is just one of millions of Europeans who have benefited in the past few years as credit-card issuers have fought for a bigger share of the fast-growing, and highly lucrative, market for revolving credit. Dozens of recent entrants have launched cards that come with no annual fees, low or no interest on transferred balances, generous reward schemes, and gifts. The feistiest combatants include a bevy of U.S. credit-card specialists such as MBNA, Capital One, and HFC Bank, a British subsidiary of Household International. "The competition is ferocious, and it's heating up," says Richard Thompson, a partner at PricewaterhouseCoopers in London. "There are bound to be casualties."
Hardly a day goes by without American Express Co. mounting a direct selling campaign for its blue revolving-credit card in at least one major European airport, rail station, or shopping center. Meanwhile, Spain's Banco Santander Central Hispano (BSCH) is hawking credit cards in Germany, while several other Continental issuers are planning pan-European forays, encouraged by the arrival of the euro, the relaxation of rules governing cross-border credit-card issuance, and growing consumer use of the Internet. Citibank is aggressively pushing its corporate credit cards with European companies; it launched them in six countries last year and will move into another six in 2002. "There's massive latent demand for revolving credit on the Continent," says Ron Boddy, the board member in charge of international operations at Barclaycard, Europe's biggest credit-card issuer, with 11 million customers.
Industry analysts expect European Union consumers to spend $250 billion using their credit cards this year, or 20% up from last year's level. And with the number of credit cards in use across the EU rising by more than 7% a year, that amount could more than double by 2010. Only one in five people on the Continent over age 15 have credit cards, compared with the 70% who have debit or charge cards, such as France's Carte Bleue. But consumers increasingly see credit cards as a more flexible alternative to bank overdrafts, their traditional source of credit. "The arrival of the euro makes it easier for credit-card providers to push them across national boundaries, while the growth of online shopping encourages their use, even in countries like Italy and Germany where cash is still king," says Richard Cooper, a payment-card specialist at First Data Corp., which runs the European payment systems for several card issuers.
It's easy to see why so many banks and other issuers want a slice of the pie. Well-run credit-card operations can generate returns on equity of 50%, not surprising given interest rates of up to 24.9%. Moreover, credit cards are great cross-selling vehicles. "You know what your customers are spending, when, and on what, "points out Cooper. "If they buy a motorcycle, you can try and sell them insurance."
But attracting and retaining customers--whose tastes and behavior vary widely from country to country--isn't easy. In Spain Barclaycard sends teams to cafes, where they market cards to customers over cups of coffee. That approach doesn't work next door in France, where customers are more formal and prefer to be approached via mass mailings. Retaining customers is especially difficult now that many are hooked on "rate-chasing," moving balances from issuer to issuer to get the best deals.
In the long run, financial-services experts expect the competition will force consolidation. The victors will probably include Barclaycard, BSCH, the main German savings banks, and the big U.S. issuers, which combine the best risk-management and marketing skills with the large customer numbers needed to pare processing costs to the bone. And when the shakeout comes, Noreen Chaplin might find cheap credit is not so easy to find. By David Fairlamb in Frankfurt