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Johannesburg - Despite mounting SA Reserve Bank concern about growing levels of personal unsecured debt, the South African market could be in line for a greater number of foreign credit card players eager to get a piece of the highly profitable sector.
Research by British-based banking research and advisory firm Lafferty Group, shows that credit card issuers in SA generated pre-tax profits of R1.6bn last year and that will grow sharply this year.
Those growth rates are attractive and could draw additional foreign players into the market, where both Barclaycard and Virgin Money are making a significant impact.
Both Citibank and HSBC are among international players believed to be hungrily eyeing the sector.
Fantastic business to be in
Financial institutions in SA have approximately 6 million credit cards in circulation and the Lafferty Group expects that to grow to around 8 million by year-end 2007.
"Credit cards are a fantastic business to be in," says chairperson Michael Lafferty. "They're an extraordinarily profitable business line."
Researchers believe that despite the significant growth rates registered by credit card providers over the past two years, the amount owing on those products will more than double from current levels of around R35bn by end-2007.
Senior Lafferty Researcher Alison Smithie says banks are also likely to drive market share growth through the acquisition of store card businesses from retail groups in SA and convert those to either MasterCard or Visa credit cards over time.
All fingers in the pie
As bankers seek new ways of growing market share in an increasingly competitive credit card market, cellphone provider Vodacom announced the launch of its own branded credit card (in conjunction with FNB) and Standard Bank reported it would be terminating its relationship with the SA Airways Voyager programme on December 19.
The Standard Bank announcement comes weeks after it and other bidders lost out to rival Nedbank, which announced it would be underwriting the national carrier's own credit card product.
Nedbank insiders say the victory has been a significant morale booster for the group, which is still in an extended turn-around phase after years of under-investment in SA's lucrative retail banking market.
The move now sees Nedbank firmly in bed with SAA, with British Airways in partnership with Standard Bank and Comair budget subsidiary kulula.com teamed with FNB.
Virgin Money also offers airline ticket incentives - on international flights only - to users of its credit card offering.