Our store cards are marked

Lurid tales of shoppers in debt therapy and regular attacks on stratospheric interest rates have given store cards a bad name. Few would speak in their defence.

That is why store cards are in serious decline and it's ironic that it is only now that the competition authorities have decided to investigate.

So here is a prediction about the outcome of the monopoly inquiry. The Competition Commission will decide that the consumer credit market is so broad that store card providers do not have a monopoly. It will conclude that it cannot punish providers for their high interest rates, hard-sell tactics or lack of transparency. It will demand voluntary reforms.

These will include simplified customer information, longer, more explicit get-out clauses, less aggressive sales practices and, possibly, a recommended time limit on contracts with retailers.

Since the commission will take 18 months to give a verdict, most of the providers will have sensed the way the wind is blowing and acted already. GE Capital, which has a sizeable chunk of the best-known store cards, has made a point of pre-empting precisely these demands.

Of course it is far too early to be sure of any of this. Paul Geroski, commission chairman, will not even produce a 'statement of issues' - what he thinks the inquiry should be looking at - until September. There are many private consultations to be had before then, many submissions from the likes of HSBC (owner of John Lewis's and M&S's financial services) who declined the opportunity to speak at a rare open forum last week.

But look at the facts and the statements already made and it is hard to predict any other outcome. Until Wednesday, everybody at the party - the providers, consumer groups and market analysts - thought the game was to focus on the £4.8 billion store-card sector and ignore the wider consumer credit market, worth £207bn excluding mortgages. That would not look good for the main providers. So GE Capital, for example, which did take up the challenge to speak in public (a Damascene change in attitude, as chief executive Brad Cooper admits), spent much time urging the commission to look at its nice little earner in context. Without 'context' Geroski would be more likely to conclude that there was a monopoly at play which led to interest rates - at 30 per cent - double the high street banks' rate.

On Wednesday, however, Geroski said he would look at the comparable costs of credit cards and loans, in other words the whole unsecured consumer credit market. 'How else do you understand store cards?' he asked.

Cue headlines such as: 'Inquiry into store card charges to be widened'. The commission denied there was any change. 'The OFT's [Office of Fair Trading's] terms of reference do not require us to investigate credit cards. The focus is on store cards but while we are looking at them we have to look at them in the context of the wider market. You would think something happened last week, but nothing changed.'

Even the Consumers' Association does not believe the monopoly line. Mike Naylor, its principal money researcher, said: 'It is more to do with the same sorts of concerns we have about the whole credit card market: lack of transparency, complicated products and sales practices. The OFT had to be seen to do something because the Treasury select committee told it to. We would have preferred more emphasis from the OFT on sorting out much more important issues like interest calculations on credit cards.'

The monopoly inquiry's purpose is questionable because, as most of those who appeared on Wednesday comprehensively argued, the store card sector is in decline largely due to its own failings.

According to GE Capital, the average balance on a store card is £350, compared with £1,500 on a credit card. Just 3 per cent of the 10 million customers use their store card as a long-term loan facility and nine out of 10 of them also hold a credit card.

That still makes GE Capital £85m profit a year, but the writing is on the wall. Cooper is launching dual store/credit cards for retailers in September. 'We already have a Harrods credit card and we have been piloting one for Debenhams and Asda,' said Cooper.

HSBC, which criticised GE Capital for its position in the store card market and the length of its contracts with retailers, now owns the John Lewis and Marks & Spencer joint credit and store card business. It remains to be seen whether the M&S rate will fall to the John Lewis APR of less than 13 per cent.

Datamonitor's Julie Cunningham said that store card balances grew by 3.7 per cent last year, but only because providers have changed the way they calculate them. Credit card lending grew by 14.2 per cent and all consumer lending by 11 per cent.

'Store cards have failed to capitalise on the consumer borrowing boom,' she said.'It is unquestionable that APR is anti-competitive and the cards can only be used in one store. She believes the decline will continue. New chip cards - Argos already does one - give the same discounts that store cards offer but can store personal information.

'A shopper could record their favourite department and their date of birth, gaining double reward points when they shop and, say, an additional discount on their birthday,' she explained.

The growth of loyalty cards that can be used at other shops and which offer a general credit facility makes traditional store cards look one-dimensional. Global banks, such as MBNA, have expanded their business by branding cards with anything from a charity to a university, so organisations benefit from the marketing and customers have a general credit card. Retailers will always want branded cards with benefits for repeat shoppers. There is just more choice.

That gets to the bottom of it. More choice for customers makes it hard to see how Geroski can find a monopoly at play, complex or otherwise. By the time the Competition Commission delivers its findings the horse will not have bolted, it will have died a natural death.