The consumer finance market is divided into two main categories: financial cards and consumer lending.
The use of financial cards continues increasing for several reasons. Firstly, many locals prefer to use cards instead of cash, which is mostly due to the convenience of cards. Secondly, the Bank of Israel exerts efforts at minimizing cash use; for example, starting January 2019, cash transactions are allowed only up to ILS 11,000 between businesses and up to ILS 50,000 between individuals.
Thirdly, non-bank credit cards have grown rapidly in the past few years, with more companies entering this field and attracting customers by offering discounts, gifts, and other incentives. Non-bank credit cards allow people to have higher credit limits, which is a significant competitive advantage compared to banks.
Another reason for credit card growth is the ongoing growth of internet retailing. People make more transactions online using their credit cards for ordering tickets, booking hotels, flights, and purchasing various goods.
The Ministry of Finance decided to split the ownership of credit card companies from banks in order to encourage competition in the credit card market. While raising competition is expected to decrease prices for the final customer, some argue that without the bank data regarding the customer’s history of financial behavior, credit companies are at a higher risk and therefore prices will rise as a consequence.
This market continues to increase; consumer expenditure is rising while disposable income is decreasing due to high cost of living. In order to maintain the living standard they are used to, many consumers take loans or increase their credit lines. The low-interest rate also encourages consumers to take loans for various purposes such as education, travelling, and car purchases, and even to pay off previous loans with a higher interest rate. The public's unwillingness to change its living standards is reflected in the purchasing of cars and outbound tourism – each of the past three years has broken records in both markets.
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