Cars used as lure in credit card launch: Three new entrants in plastic battle

TWENTY-EIGHT years after Barclays Bank went plastic, General Motors yesterday launched its own credit card.

The GM card, issued through HFC Bank, will plug into the Visa network and offer customers up to pounds 2,500 off the cost of a new Vauxhall car.

Currently being advertised on television to the strains of Aaron Copeland's 'Fanfare for the Common Man', it is the first of three credit cards to be launched this year into an already intensely competitive market.

Not to be outdone, Ford and Barclaycard have linked up to provide a similar car discount scheme. More than 200 vehicles have been sold ahead of the April launch of the Ford Barclaycard.

Later this year, the MBNA Bank based in Delaware, United States, which has established its European head office outside Chester in north-west England, will launch another credit card.

Fourteen major issuers, mainly banks and building societies, operate 28 million credit-card accounts in Britain. Around pounds 30bn a year is spent through them, with a further pounds 3bn through storecards. Since 1987, there has been a dramatic growth in affinity cards, which make donations to a cause each time they are used. Some 400 raise money for the arts, political parties and charities.

The British, holding an average of 1.2 cards, are the heaviest credit-card users in Europe. Liz Phillips, director of the Credit Card Research Group, believes that consumers have become 'smarter and more sophisticated' in their spending and financial management. 'They take advantage of the various bonus schemes on offer without paying the higher interest premiums,' she said.

Half of all credit-card users now pay off their bills within a month, compared with just over a third in 1980. Three- quarters pay off bills in most months, only running up debt around Christmas and the summer holidays. While card spending has increased through the recession, the amount owed has remained constant at around pounds 8bn.

The issuers have responded to the drop in use of their borrowing facilities by introducing an annual fee. And annualised interest rates may have fallen, but interest is charged from the day the transaction reaches an account, unless the bill is paid in full. So if you spend pounds 1,000 but repay pounds 999 by the due date, you still pay interest on all pounds 1,000.

There are competitive interest rates and annual fees on offer, but Ms Phillips believes that users have not really shopped around. 'The market is not quite as price sensitive as you would imagine.'

'There was some switching when annual fees were introduced, with the number of cards in circulation falling to 27.5m from a high of 30m. But the money being spent through cards has still increased.' The changes, she said, helped flush out infrequently used cards.

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