Ireland is one of the most profitable markets in Europe for credit card issuers, despite increased competition. A report by Lafferty Research suggests that Ireland ranks second to Britain in terms of profitability for credit card companies, even though it remains a very small market.
The report estimates that credit card companies can generate profits of around 10 per cent of all credit card sales in Ireland. In 2000, credit card sales stood at £4 billion (€5 billion), suggesting profits of €500 million here.
The arrival of the US credit card issuer, MBNA, in 1997 has shaken up the market here, with Tesco also adding a highly competitive credit card option for customers. These entrants have forced the two main banks, AIB and Bank of Ireland, to reduce the rate of interest charged and to introduce additional services.
The banks, which are the biggest issuers of cards, were charging the highest rate of interest in Europe before the arrival of MBNA, but have been forced to adjust those in line with greater competition.
The report indicates that 45-50 per cent of all credit card holders roll over their balance from month to month, making the products highly lucrative.
Ireland is still a relatively small market for credit card issuers but, with the changeover to the euro and the growth in debit cards, the number of cardholders could rise substantially in the future.
A large number of people who make up the well-educated, well-paid sector which is sought by all service providers still do not hold credit cards.
Among those who do, a considerable number do not incur any interest charges as they clear their balance every month and use their credit card as a charge card.
New entrants in the Irish market are more likely to impose penalty fees, according to the report. MBNA and American Express charge a fee for the late payment of credit card bills and will also charge where a cardholder exceeds the credit limit. The Irish banks have tended not to impose such charges.
The large supermarkets have also developed loyalty card schemes with Tesco, Dunnes Stores and Superquinn attracting large numbers of customers.
For existing card issuers to maintain and expand their market share, they need to differentiate the range of card products, incentives and service options available, according to the report. Their pricing strategies should also be reviewed and rates reduced.
New entrants to the Irish market will need a very different product than those already on offer to win a significant share of the market. Tight distribution and sharp marketing campaigns will also be crucial.
The report states that greater transparency in terms of pricing across the euro zone will enable easy comparisons between different states and should have a positive impact for consumers.
Visa is the dominant general purpose credit card brand in Europe, followed by MasterCard.
