The traditional place of the credit card as the dominant player in peoples’ credit affairs may be at risk.

The latest ‘Precious Plastic’ report from PricewaterhouseCoopers (PwC) says that, as consumers find it more difficult to get credit via the normal routes, they are more likely to opt for the less mainstream but growing market of such things as the payday loan and pawnbrokers.

Over the course of 2011 says PwC the number of credit cards in circulation fell by about 1 million with credit card borrowing also falling to the tune of about 5%. The average credit card balance is now some £1,000.

The report is based on a survey of 2,000 British consumers on ‘…their attitude to credit, their ability to pay and their future borrowing intentions’.

Overall the survey found that there is a ‘growing reluctance’ to borrow, a fall in confidence in being able to repay loans as well as a worrying increase in the number of people relying on credit for buying essential items.

Less than half of the 18-24 year olds asked thought that they would be able to meet their commitments and over a quarter of 25-34 year olds admit that they were forced to use credit for essential purchases.

So while people do not want to borrow it seems that when they have to some are being forced to get credit from the only place they can get it, via the shorter term high interest route. These people are the ‘underbanked’.

As credit card usage has dropped off, either due to consumer preference, tighter lending criteria, a more robust regulatory framework or a combination of all three, write-offs are still at the high end says PwC. Although at 7% of outstanding balances write offs are below 2009’s 9.5%, they are still well above the 1%-2% seen in the late 90s.

Now, it does not take a rocket scientist to realise that if those balances are being written off someone has to pay; the assumption being that all the other credit card users are making up the difference via their payments and interest rates.

PwC also found that in general customers preferred the digital approach. ‘We have reached a digital tipping point. Digital banking is set to become the chief source of customer interaction and enabler of a more engaged customer relationship. Card and payment providers will need to assess the impact on their business and how to keep pace.’ Says the report.

But in the same vein mobile solutions still have a lot of hurdles to overcome says PwC before it is in a position to become a mainstream payment method.

The main problems for the credit card industry are that people are cutting back on their borrowing (4% in 2011) and PwC expects this to continue into 2013 and the people that do need to borrow are forced to go to alternative lenders leaving credit card providers fishing in an ever diminishing pool of potential customers.

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