Use of credit cards fall on the British high street

June 28th, 2011

A new sense of fiscal responsibility has been seen on the UK high street as credit card use fell last year as people turned to cash and debit cards to avoid borrowing, according to the nation’s shopkeepers.

The British Retail Consortium (BRC) which represents 90% of the UK’s stores, say transactions involving credit cards dropped 12.9%.

The number of transactions involving cash also fell, although the average amount spent rose by 13% to £12.93. Debit card use jumped by 15.8%.

The BRC has criticised the level of bank charges associated with credit cards. It pointed out they are the most expensive payments they have to process.

On average in 2010, each retailer paid 1.7p per cash transaction to have the money transported and banked. However, the average charge for processing a credit card payment was 37.1p, compared with a debit card average of 9.2p. Thanks to the business incubation guys over at NewInternetIdeas.com for this information.

Credit cards were used in just 10% of all transaction, but accounted to more than 44% of processing costs.

The BRC added that cash was the quickest way to pay. Using physical money took an average of 27.2 seconds, it said, compared with an average 39.4 seconds for a card payment.

The BRC’s annual Cost of Payment Collection Survey includes results from nearly eight billion transactions in store and online, 60% of the UK’s annual retail sales.

Retailers reported fraud losses had fallen by 37% compared with 2009 after investment in technology, such as the latest secure card readers, new levels of internet security and note checkers at tills.

The figures presented by the BRC show a clear pattern. Hard-pressed customers are switching to cash and debit cards for the reassurance that they can’t spend what they haven’t got. At the same time, use of credit cards has dropped sharply. Cash remains dominant and was used for more than half of all retail payments.

What remains to be seen, and cannot be demonstrated by this data, is whether or not this pattern represents a growing maturity among the British public with regards to their spending habits or rather their restraint by default because they cannot get credit. Thanks to the guys over at ideasforabusiness.co.uk for this.

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One bank admits defeat on PPI: The rest hold out for now

June 19th, 2011

In the latest news from the ongoing battle between consumers and large financial institutions, Barclays has said it will pay out compensation to everyone to whom it sold payment protection insurance and who made a complaint before 20 April.

Customers will be reimbursed the total value of all premiums plus 8% interest. The bank said the move would affect tens of thousands of customers, particularly those put on hold during a recent judicial review.

Barclays said it was the first bank to pay out PPI compensation on a “no-quibble” basis. It said its customers had waited long enough because of the long-running judicial review, and this would allow it to clear the backlog quickly and assess new cases more quickly.

Separately, the FSA has given three banks – Barclays, Lloyds, and RBS – more time to deal with their huge backlogs of complaints and a flood of new complaints.

As an indication of the scale of the problem, the Financial Ombudsman Service (FOS) revealed that since the start of April this year, it had received 40,000 new PPI complaints from people unhappy that their original complaint had been turned down by their bank.

In April, the banking industry lost its High Court challenge to new rules on the sale of PPI.
These were imposed last year by the Financial Services Authority (FSA) and the FOS. Among other things, the rules require sellers of PPI polices to review all their past sales to see if their customers have a claim for mis-selling, whether or not they have actually complained.

While the legal case was going on the banks put on hold tens of thousands of fresh PPI complaints that came in.

After losing their case, Lloyds Banking Group set aside £3.2bn to cover the cost of this compensation, followed by Barclays (£1bn), RBS (£850m) and HSBC (£269m). Barclays now says complaints lodged before 20 April will be eligible for automatic reimbursement, while those received since then will be assessed on merit.

Although it was hoped that the Barclays announcement would lead directly to the other banks adopting the same policy, Lloyds later said it would not be paying out on a “no quibble” basis.

Normally, complaints would have to be dealt with in eight weeks. However, some firms are facing a huge backlog and now a surge of new complaints which has created a bottleneck”

Now the FSA has decided that as a temporary measure, complaints put on hold during the judicial review must be settled by the end of August. Fresh complaints since the end of the judicial review but received before 31 August must be dealt with in 16 weeks. And PPI complaints received after the end of August but before the end of 2011 can be dealt with in 12 weeks.

After that, the normal eight-week timetable will apply.

There is no doubt that this is good news for consumers, especially after the bank charges fiasco. Whether is marks a sea change in the attitudes towards their customers taken by large financial institutions remains to be seen and I, for one, am sceptical. However, this does show that consumers have the means of redress and can, eventually, get their money back with interest.

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Interest rates on hold for now, but a rise is on the way

June 12th, 2011

This week, UK interest rates were kept at the record low of 0.5% again by the Bank of England’s Monetary Policy Committee. Economists had widely expected the decision, as recent data has underlined worries about the strength of the UK’s recovery.

The decision comes despite the annual rate of inflation rising to 4.5% in April, up from 4% in March, and well above the Bank’s 2% target and is the 27th straight month that the bank has left rates unchanged.

Meanwhile, the European Central Bank’s president, Jean-Claude Trichet, has signalled that its interest rate could rise next month. The ECB on Thursday held rates at 1.25%, but Mr Trichet said the bank would maintain “strong vigilance” on inflation – widely interpreted as a signal to the markets that rates will be raised at the next meeting.

Analysts believe that continuing high UK inflation also made a rate rise by the MPC likely this year, some analysts believe this could come as soon as next month although that view is not widely held.

In fact, poor UK economic data has led some economists to push back expectations for the timing of the first UK rate hike as far as March next year.

However, with inflation likely to move above 5% in the next three to four months on the back of rising utility bills and food prices and with employment and employment intentions surveys remaining firm, the balance of probabilities favours an earlier move.

Economists say policymakers face a difficult choice: keep rates on hold to help the economy, or raise them to cool inflation. But higher rates increase the cost of borrowing, and there are concerns this may hurt the economic recovery.

The record low Bank rate has led to relatively small returns for savers. The latest statistics from the Bank of England show that, at the end of May, the average rate of interest with an instant access bank or building society account was 0.3%. This has been unchanged since a slight rise at the start of the year.

For cash Individual Savings Accounts, the average interest rate was 0.55%. Three years earlier, this had been 4.56%. However, as long as the Bank rate is low, borrowers – especially those with variable rate mortgages – are seeing relatively low home loan repayments.

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