Banks vie for millennial spenders with no interest credit cards
National Australia Bank and the Commonwealth have both launched new no-interest credit cards after reports millennials are abandoning plastic in favour of buy now, pay later operators.
The NAB claimed a first with its ‘Straight Up’ card, which charges fees instead of interest. But within hours, the Commonwealth Bank was flashing the Neo card, which also charges fees.
The banks claim the cards fill a gap in the market between a standard credit card and operations like the wildly popular Afterpay. The cards offer a longer time to repay the amount spent without charging interest.
There is however, a flat monthly fee, stepped in $5 increments to $20 a month with the maximum credit of $3000 offered with NAB, $12 a month for a $1000 credit limit, $18 for a $2000 limit and $22 for a $3000 limit with the Commonwealth Bank.
Some retailers like JB H-Fi are willing to refund one month’s fees as part of promotions.
NAB says customers don’t pay the monthly fee if the card is not used and there are no other fees or charges. Including no interest, no annual fees, no late payment fees and no foreign currency fees. If minimum payments are not met, the card will simply be blocked to prevent any further debt accruing.
With no merchant fees charged to retailers and no late fees, the card differs from Afterpay. It can also be used anywhere that Visa is accepted both online and in store, another point of difference.
NAB Group Executive in Personal Banking, Rachel Slade said: “In the NAB StraightUp Card, we’ve created something completely different to every other credit card available today, with a simpler approach that makes it easy for customers to take control of their finances.”
The trade-offs for having the no interest card include no reward points, no complimentary insurances, no additional card holders or balance transfers as well as restricted cash advances and gambling transactions.
Applicants will be assessed in the same way as for a standard NAB credit card and must pass a ‘responsible lending’ check.
“Credit cards have not really evolved in recent years. But our customers’ needs and expectations are changing and we want to change with them,” Ms Slade said.
Rather than taking on the BNPL giants like NAB, Commonwealth bank has followed a similar line of thought down a different road by partnering with Klarna in an attempt to address the demand among consumers for new payment options.
And now its card gives it a foot in both camps.
A Commonwealth Bank spokesperson said if a borrower used a $3000 limit Neo card at the maximum over a year, the equivalent rate would be 8.8 per cent.
“If you use less of the card, the rate becomes slightly more expensive,” he said.
Commbank customers have the option to quickly register a Klarna account through an existing CommBank account. Like other BNPL products, Klarna provides a four interest-free instalment payment model for online purchases. Whilst it cannot be used in stores, the company claims you can use it at any online retailer.
Consumer group Choice welcomes the NAB card.
Banking Policy Expert Patrick Veyret said: “This announcement from NAB is a step in the right direction. It’s clear the credit card market needs reform.
“For too long, banks have profited from the complexity of credit cards. The interaction of annual fees, different interest rates for purchases and cash advances, interest-free periods and minimum repayments make it hard for people to understand what they are really paying. That sees many people trapped in a cycle of debt.
“While this product won’t be right for everyone, it’s a lot simpler to understand than most credit cards. Importantly, this new card will be subject to responsible lending laws, unlike buy-now, pay-later products like Afterpay that have been designed to exploit legal loopholes.”