New report calls credit card market “broken” – average customers pay close to £1,000 in interest every year

Shocking new figures show that the cost of living crisis could be pushing millions deeper into credit card poverty by postponing debt repayments while struggling to pay every day bills.

And a new report suggests as many as 14 million customers could now be paying close to £1,000 in interest EVERY year.

Cardeo, the leading fintech that helps customers pay less interest on their credit cards, says its report further demonstrates that the UK credit card market is broken and needs urgent reform – with over 60 million credit cards in circulation in the UK.

Co-founder and chief executive, Gavin Shuker, warns that unless the Financial Conduct Authority (FCA) pushes major lenders to be much better at enabling customers to switch providers, customers will continue to suffer by paying more interest than they need to.

And he’s calling for customers to be given greater access to real-time data through open banking which would enable them to find products more suited to their needs and potentially reduce their debt.

Mr Shuker was speaking as Cardeo launched a new report ‘UK Credit Cards: How to fix a badly broken market’ which looks at how the UK’s credit card market operates. He said:

“The credit card poverty trap is catching more people as they struggle with the rising cost of living. It is no surprise that customers are neglecting to pay off high interest credit cards especially when the system doesn’t encourage them but as their available income is squeezed, the reality is that paying off credit card debit more effectively becomes even more important.

“Our analysis suggests that as many as 14 million people could now be paying close to £1000 in interest every year – that’s storing up a huge debt problems for millions of people and the country as a whole.”

Cardeo was launched in 2022. Its app combines open banking data with artificial intelligence to help people pay less interest with no fees enabling them to pay off their credit cards more quickly and reduce overall cost.

At almost 24%, credit card annual percentage rates (APR) in the UK are the highest that they have been in years. While interest rates on new consumer credit have been decreasing across Europe, they have gone up sharply in the UK.

Mr Shuker said:

“It is becoming increasingly clear that the UK credit card market as we know it is broken and needs fixed. If we don’t, then it’s the consumers who will continue to pay the price.”

Cardeo has called for a number of measures to be introduced improve the situation.

Mr Shuker continued: 

“For example, data needs to be freely accessible and credit card providers know this. When customers miss a payment they are hit with penalty fees. Credit card rates can be high, so it’s all too easy to fall into the credit card trap.”

Almost 20% of UK credit card customers missed a credit card in the first half of 2022 due to the rising cost-of-living, incurring overdue payment fees and interest charges while damaging their credit scores.

The UK credit card market is valued at £60bn per year of which £14bn is paid in interest annually by customers. The UK has the highest proportion of consumer credit in credit cards (c.35%) in Europe.

The report also found that the main source of revenue from consumer credit – around 80% in the case of the UK – is the interest paid by consumers on their outstanding balance.

And figures suggest that the level of switching between lenders could be as low as 3%. The incentives for providers to do more are minimal in the absence of prescriptive regulation and effective enforcement.

The report, which was launched in the House of Commons, shows that the credit card market in the UK continues to be opaque and conceals or makes hard to understand customer data that would be crucial to develop a repayment strategy or to switch to an alternative form of finance.

Lack of available data about their own finances prevents customers who need it the most from switching to a better product and effectively refinancing their personal debt.

Mr Shuker said: 

“This is clearly something that credit card companies either want or do little to encourage.

“We founded Cardeo to tackle this problem. Our app combines open banking data with artificial intelligence to beat the downward spiral. Our aim is that people pay less interest, no more fees, and are able to pay off their credit card borrowing.”

“Innovations like open banking can help customers manage these forgotten credit cards as well as optimise the interest and charges they pay by facilitating the switch to better options with lower APRs. However, although there have been some significant achievements since its inception, like the five million open banking user milestone, it has not realised its full potential so far and significant changes to the retail banking landscape including credit cards have yet to materialise.”

Cardeo has made five recommendations to make the market work better. They include making it a legal requirement to make customer data more accessible, bring in single regulator for open banking and legislate to force consumer credit providers to provide certain key data fields – known as summary box information – electronically.

Cardeo’s five recommendations

Cardeo is calling for five key changes from Government and regulators to make the market fairer for consumers:

1. Reform the Consumer Credit Act to put customers properly in control of their own credit card data
2. Ensure banks and credit card firms comply fully with the full requirements of the payments regulations
3. Make the Open Banking Implementation Entity properly accountable to Parliament and ensure benefits of open banking are made fully available to consumers
4. More pro-active regulatory oversight of new open banking rules and compliance
5. Force banks and credit card firms to provide certain key data electronically (a requirement already for paper statements)

Notes to the editor

• Full report online
• Cardeo CEO and co-founder, Gavin Shuker, is available for interview as required. Details below.
• Report launched in Parliament on Wednesday, 19 April 2023, with attendees from across politics, business and policy development.

• Cardeo is transforming the UK credit card market for good. We’re a socially responsible fintech with an open banking app that helps credit cardholders manage their accounts better, pay down debt and save money. Our customers keep hold of their credit cards but lose all the stress of juggling multiple accounts and paying unnecessary interest and fees.

• Cardeo uses open banking and is a proud graduate of Tech Nation Fintech 4.0, the Government backed scaleup programme.

• Cardeo is registered with the Financial Conduct Authority for the provision of payment services (FRN 940438) and is authorised and regulated to carry out debt counselling, credit broking and credit lending services (FRN 964449).

• Cardeo is a registered trademark of Cardeo Ltd, a company registered in England and Wales, number 12512807.

For further information

communications@cardeo.com