New data suggests that disruptive retailers and the buy-now-pay-later boom have served everyone but wiped out the brand name credit card.
Where all the big UK retailers had these cards and pushed them out to shoppers sooner with high APR rates, there are now five brand store credit cards open to new customers right now, according to figures from comparison site Fairer Finance for This is Money.
James Daley, managing director of Fairer Finance, said this was largely driven by the crash in high street retailers over the past few years.
There are now only 5 retailer branded credit cards available in the market. Some were previously offered by the likes of Arcadia and Debenhams, which have since declined
Debenhams’ credit card business disappeared as the retailer went into administration, while credit cards run by the likes of Burton, Dorothy Perkins, Miss Selfridge and Topshop closed their doors to new entrants when parent company Arcadia went bankrupt last year.
This means that, excluding credit cards that supermarkets run with their own in-house banks, Argos, IHG, John Lewis, Maximiles and Very currently offer credit cards to new applicants, with average APRs ranging from 18.9 percent to just under 40 percent. .
Store-branded credit cards are becoming more popular in the wake of 2011 regulations that ‘largely eliminated’ retailer-specific cards that could only be spent in the same store, said James Daly.
Only one of those now remains, from New Look, according to Fairer Finance research. Unlike in-store credit, third-party branded credit cards like Capital One or Creation are operated in partnership with a retailer like Very and allow shoppers to simply collect shopping points or other rewards for their spending.
Andrew Hager, founder of personal finance site Moneycomms, added: “I think the store card was a fairly attractive addition to clothing retailers 10 years ago when shopping was done on the high street rather than online.
It was common to be offered a 10 percent to 20 percent discount on your in-store purchases if you signed up for a store card at one time, at one point there were financial incentives for store employees to sign up for customers.
As online shopping takes up an increasingly larger share of retail spending, the store card model is undoubtedly becoming less profitable.
| Brand | Producer | April rep |
|---|---|---|
| argos | The classic credit card | 34.9% |
| IHG | Rewards Club credit card | 22.9% |
| John Lewis | Partnership credit card | 18.9% |
| maximiles | card credit card | 17.9% |
| Very.co.uk | card credit card | 34.9% |
| Source: Fairer Finance | ||
The cost of running a volume of cards with a very small credit limit of £250 to £500 is probably very resource-hungry and offers diminishing returns.
“The majority of store cards are gone as retailers have gone out of business.”
The costs of complying with stricter regulatory requirements around checking affordability and processing highly indebted borrowers is likely another reason for the dwindling availability of these credit cards, according to Clive Black, head of research at Shore Capital.
Online spending accounted for 36.1 percent of all retail sales in February 2021, the highest ever, up from 20 percent in the same month last year, according to the Office for National Statistics.
About 57.6 percent of clothing purchases were made online.
36.1% of online shopping was done in February. For clothing purchases, the percentage was 57.6%.
And as that spending increases online, point-of-sale credit has been increasingly cannibalized by buy-now, pay-later companies like ClearPay, Klarna, Laybuy, and PayPal, which offer hassle-free checkout experiences and no interest on borrowing.
The result was a booming market, in which retailers—who had seen declining in-store footfall—were eager to make the money themselves.
Many have seen ads from the likes of Klarna saying their offering leads shoppers to spend more, more often, and have sought to create their own versions as a result.
While experts warn that this can be a dangerous way to shop, especially the younger generation, retailers are of course keen to increase overall basket spending.
It looks like John Lewis and M&S are ready to launch their own “buy now, pay later” services
Two of the UK’s high street fixtures, John Lewis and Marks & Spencer, appear poised to develop their online payment services later as more online purchases are made, while a third, Next, already has one, although His insistence that he’s not a Klarna-esque suggestion.
New Look store credit, offered by Sweden’s Ikano Bank, is marketed as a buy-now-pay-later service, albeit one that charges 28.9 percent from APR.
Gary Rohloff, co-founder of New Zealand-based post-payment service Laybuy, previously told This is Money that it is “not surprising” that individual retailers have started offering their own versions of BNPL.
New Look has rebranded its store credit to make it more like a buy now, pay later service even though it is an interest bearing credit offered by a bank
“What is clear to me is that stores are seeing interest-free BNPL’s popularity, in large part because customers don’t like traditional products like credit cards or catalog financing.”
Consumer borrowing fell by another £1.2 billion in February according to the Bank of England, meaning the buildup of household debt in Britain fell by nearly a tenth since February 2020, the biggest annual decline since records began in 1994.
But the popularity of buy-now-pay-later services has soared, with spending nearly quadrupling between January and December 2020, according to the Financial Conduct Authority.
Dr. Black previously told This is Money that the likes of Klarna are “becoming more mainstream, especially among younger shoppers.”
James Daley added that while failed retailers were the main reason behind the demise of in-store credit cards, the popularity of the post-pay sector was also responsible.
These markets seem to be quickly evaporating in favor of BNPL. Obviously, it makes sense for these companies to launch their own BNPL solutions – the cost of the Klarna model is paid for by retailers.
If they could provide this service themselves, they would save the money they pay BNPL providers. Smaller retailers will not have the ability to do so. But I imagine larger companies will likely follow the same path.
“The coronavirus recession has now either killed retailers like Arcadia that offered store credit cards, or Klarna has made their credit products redundant,” he added.
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