Flexible friends find new angles

THE PAST week has seen the launch of three new credit cards: two by Barclaycard and one by American Express. But this does not necessarily mean the start of a surge in consumer spending financed by credit. Research suggests that the UK market for credit cards is only half as well developed as the US one and is growing more slowly.

Even more worrying for the industry, many younger adults are more at home using debit cards, which offer no free credit at all, than they are with credit cards. This may be because debit cards are much more recent. But it could also be the mark of a generation, scarred by the recession, that has never known the elusive "feel-good" factor.

In spite of its high public profile and the air of effortless luxury conveyed by its advertising, American Express has had a bad time since the yuppie bubble burst at the end of the 1980s. The introduction of the new credit card is an attempt to rebuild its UK business, which suffered heavily in the recession as a direct result of its luxury image and its fee structure.

The existing American Express and Amex Gold cards are actually charge cards, which have to be paid off in full each month and offer customers no extra credit. Charge cards make their money from the retailers who accept them. Many retailers stopped taking the cards because of the high charges - up to 6 per cent in some cases. Even worse, they asked customers who offered American Express cards if perhaps they had another card instead.

The new credit card will charge retailers less in an attempt to attract back outlets. Instead, it will make up its profits through interest payments by credit-card holders on extended credit.

Barclaycard, in contrast, is offering two new cards. The up-market Barclaycard Gold is aimed at the hard core of existing Barclaycard holders who still feel confident enough to make extensive use of cards and want something better than the standard one.

The other, Barclaycard Sense, is a deliberately down-market card with restricted facilities, apparently targeted at the millions of adults who are not hooked on credit cards or who simply do not trust themselves to handle the temptations even a conventional Barclaycard offers.

The new Barclaycard strategy is based on extensive consumer research, which shows that there are 27 million adults in the UK who have the jobs or income sufficient to qualify for a credit card. Around 4 million of them have tried cards and given them up, perhaps because they overreached themselves in the past. Another 3 million are objectors in principle; people who are determined to live within their means and not to accept credit under any circumstances. About 13 million do have cards and use them, leaving a potential untapped market of just 7 million.

The research suggests that only 10 per cent of the eligible adults surveyed class themselves as "confidents" - confident enough to contemplate the regular use of credit cards.

Another 10 per cent are classed as "maximisers", who weigh up the best way of maximising credit opportunities. They pay by cash, cheque or credit card, depending on whether or not they have just paid a monthly credit card account and can look forward to the best part of two months' credit. This group rarely fails to pay its debts each month in full, and offers little in the way of fresh business opportunities

About a quarter of those who qualify for cards class themselves as "cautious" folk, who are reluctant to put themselves into a position where they could get into debt. Less than 25 per cent of this category has a credit card, compared with about 46 per cent of the eligible market as a whole.

The remaining 55 per cent are classed as "floating voters", who have no strong opinions about the way they pay their bills. Half these people are under 34 years old, and are more used to debit cards than credit cards.

Barclaycard Gold is aimed at much the same market as other gold cards. Gold holders will be offered increased credit limits, including a minimum of £2,500 of revolving credit, the right to withdraw up to £500 a day in cash from Barclays cash dispensers, a cheque-book account with a limit of £5,000 for large purchases, and an APR of 20.9 per cent (2 per cent less than the existing Barclaycard charges for extended credit), in return for an annual fee of £30, which is less than half the charge on conventional gold cards, but three times the charge for a standard Barclaycard.

Barclaycard Sense offers a much lower credit limit, a maximum of £500, and allows holders to draw no more than £50 a day from cash dispensers - roughly half the facilities available to conventional card holders. In addition, Sense will require holders to repay at least 10 per cent of the amount outstanding each month. There will be no automatic credit, and they will not be troubled with sales literature that might undermine their self-control. But they will still be required to pay the standard £10 annual fee.

The only luxury Sense holders are offered is anonymity. While Barclaycard Gold cards will be appropriately coloured, Sense cards will be indistinguishable from conventional cards.