How the credit card market is working

Read our research on how the credit card market is working for consumers and how the providers make their money.

This page was published in 2015.

How credit card providers earn their money

The main card issuers are banks and building societies, mono-lines (i.e. non-banks specialising in issuing cards) and specialised lenders focusing on certain sectors, such as sub-prime borrowers.
Our firm research identified three high-level business models:

  • high-street banks targeting upper and middle-prime consumers
  • direct-sales targeting all consumer groups
  • issuers targeting sub-prime borrowers 

Our research also found that interest generates the most revenue.

Interchange fee revenue appears to be used by some providers to pay for reward schemes. The largest costs are from defaults, followed by costs of funding and costs of operation.

Profitability appears higher for firms that target subprime borrowers.

Borrowers not paying interest on balances, especially consumers that pay off their balance every month, are likely to have their costs subsidised from other sources:

  • possibly from revenue they generate from being sold other products or services
  • from interchange fee revenue their payments generate
  • from interest revenue from other consumers

How the market is working for consumers

Superficially there appears to be strong competition in the credit card market. There are numerous providers, and some consumers shop around and switch actively, particularly those seeking 0% balance transfers.

However, competition also appears focused on particular card features that may not represent long-term value or sustainability.

Consumers do not know what APR, credit limit, and in some cases the length of 0% promotional period they will get before applying for a card and many have a poor understanding of credit card features and costs.


Combined with the complexity of some credit card features, this presents a barrier to them judging the overall value of the card when shopping around (if they do).

Our research suggests that some consumers who pay interest on balances underestimate how much of the credit limit they use and their ability to repay. Firms can earn more money from these consumers as they build up debt and stretch repayments over longer periods.

UKCards (2014) report that of 30m active accounts, 3.7% of cardholders have made 12 or more consecutive minimum payments and 2.3% have made 24 or more. This equates to 1.1 million cardholders making 12 or more consecutive minimum payments and 700,000 making 24 or more. By repeatedly making minimum payments, consumers in this group who are incurring interest will pay more for their borrowing.

UKCards (2013) report that there was a monthly average of 0.9 million accounts up to six months overdue in 2012. The average balance of these accounts stood at just over £2500. Though they report a significant fall from 2011 (1.7 million accounts), it indicates a large number of consumers struggling with their credit card debt.

The large numbers of consumers that are making repeated minimum payments or that are overdue on their accounts indicates that a large number of consumers may be using cards unsustainably and at risk of potentially severe detriment as a result.

Our research with firms shows that some issuers may profit more by lending to higher-risk borrowers. This may be exacerbated by some mainstream lenders being unwilling to compete for these groups.

Also, consumers that pay interest on balances may be subsidising those that don’t. Interchange fees from retailers, for example, are probably not sufficient to cover costs of card users who do not incur interest.

Page updates

: Editorial amendment page update as part of website refresh.