Punters keep shelling out with Egg

But an over reliance on its credit card business and an increase in bad debt charges has raised doubts over its long-term profitability.

Launched in 1998 by financial services firm Prudential, Egg now enjoys a four per cent share of the UK credit card market but has increased charges for bad debt to £68m, from £37m a year ago.

A combination of first-mover advantage and enticements such as zero per cent introductory credit offers helped Egg to attract 600,000 new customers last year and reduce its losses by 43%.

Growing pains

Despite these positive signals, industry watchers are concerned that the firm may be seeing unsustainable growth. Giga analyst Martha Bennett said: ‘It depends what two million customers means.

‘What is important is whether the customers are profitable. Egg has done well on the credit card business, but how much more growth it can get out of it is another issue. Hence its desire to expand into other countries.’

Bennett argued that, if online banks attract customers purely on price, they will lose them too easily when charges are increased.

But an Egg spokesman stated: ‘You would expect the kind of customer who is attracted by a zero per cent offer to go somewhere else after it ends, but we are actually seeing an 87% retention rate.’

Bennett maintained that the success of online banking has been tempered by the unwillingness of customers to buy complex products such as pensions over the web, and that for such transactions customers may prefer to talk to an agent rather than deal with an automated system.

Similar services

Another problem is a lack of differentiation between online services, as web-savvy customers consider their options.

‘Egg needs to decide what its competitive differentiations are, and how they can be imitated,’ explained Bennett. ‘If it puts services in place that are not replicated easily, it will be in a much better position.’

One example of a differentiator might be Egg’s planned aggregation service, which would let customers access accounts with other banks from within Egg’s website.

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