As the marketplace for the clearing of credit cards in Israel opens up to competition, the number of actively used credit cards rose by 14 percent in the first six months of the year to 4.9 million.
"Changes in the credit card industry have been driving competition putting pressure on the credit card companies to invest into marketing their products more fiercely," Eyal Yanai, co-CEO of Business Data Israel told The Jerusalem Post Monday.
Until a couple of years ago, the "credit cards" issued by Israeli institutions actually were deferred debit cards, before revolving credit, or credit outside of the banking framework, was introduced in 2004, such as Leumi Card's Multi. These are linked directly to a bank account, and allow the balance to be withdrawn automatically every month.
According to research conducted by BDI-Coface, credit card companies saw their revenues rise by 12% to NIS 1.4 billion in the first six months of the year compared with the same period last year.
Until last year, Isracard, Bank Hapoalim's credit card company, had a monopoly in its clearing of Isracard and MasterCard credit card transactions. The BDI report showed that Isracard was still the
leading the credit card market in terms of revenues with a market share of 46% followed by Cal with 32% market share and Leumi Card with a 22% market share.
At the end of October 2006, Ronit Kan, the anti-trust commissioner, endorsed a mutual clearing agreement with the three major credit card providers - Isracard, Visa Cal and Leumi Card - in an effort to open the clearing business of MasterCard to competition from others and to dramatically bring down fees. Clearing companies collect money from customers who buy goods with their credit cards and transfer it to the relevant businesses, which pay a charge on each transaction.
"We will only see the effect of clearing agreement from the second half of the year,? said Yanai. "The change is expected to bring down fees by 30% from 1.25% in 2006 to 0.875% in 2012."
While this will help the consumer, Yanai said revenue at the credit card companies will suffer but that "they are already working on regaining lost income from reduced fees by offering non-banking financing avenues."
Economists at BDI Israel reported that in the first half of the year credit card companies saw profits from financing activities such as loans increase by 21% partly as a result of the new overdraft law, which came into effect in July that forced many to seek alternative credit routes now being offered by credit card companies.
Some 42% of the credit card sales in the first half of 2007 resulted from payments of services including, electricity, gas and petrol, medical services, phone and Internet and books among others. Purchases of food and drink made up 21% of credit sales, while the purchase of travel services made up 19% and manufactured products, including clothing and footwear and electrical items, made up 18% of all sales.
At the same time about 48% of all credit card purchases were made for an amount of up to NIS 100, 23% for an amount of between NIS 100 and NIS 200 and 21% for an amount of between NIS 200 and NIS 500.