Big Four bank NAB has launched a no-interest credit card that analysts say is a response to the rapid growth of Afterpay services.
While most regular credit cards charge up to 20 per cent interest on purchases after the interest-free period, NAB says its world-first StraightUp card will never charge interest.
Instead, users must pay a minimum monthly amount that is dependent on the credit limit plus a monthly fee. NAB says there are no late fees and no fees if the card is not used.
On a card with a $1000 credit limit, the customer must repay a minimum $35 per month and incurs a $10 monthly fee which is included in the balance. For a card with a $2000 credit limit, the minimum repayment is $75 per month, with a $15 monthly fee. On a $3000 card, the minimum repayment is $110 per month with a $20 monthly fee.
NAB Group executive-personal banking Rachel Slade described the card as an innovative way to provide Australians with credit.
“We started with a straightforward idea – to create a card with no interest, no annual fees and no late payment fees,” she said.
“This is the result – a simple, easy-to-understand credit card that can be used anywhere Visa is accepted online or in store.”
Ms Slade said the card had been developed to cater for Australians wanting more control over their finances.
“A lot of young customers don’t have credit cards because they don’t like the unpredictability of them. This addresses the things that make them cautious. Customers want certainty and predictability of repayment. It’s got no surprises.”
Patrick Veyret, banking policy specialist at consumer group CHOICE, says the announcement is a step in the right direction in a sector that needs reform.
“For too long, banks have profited from the complexity of credit cards,” he says. “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.”
Sally Tindall, director of research at RateCity, said potential users should do the maths and factor in the monthly fee.
“It is likely to appeal to someone looking for access to credit with training wheels, as they won’t get into a debt spiral, someone who wants to put it in a bottom drawer for an emergency, or someone wanting to make a one-off purchase and pay off over time.
“But it won’t be for regular use, or for those who are fastidious about paying off debt.”
Website savings.com.au offers the following analysis of the card.
“Although an interest-free credit card might sound great in theory, it’s important to look at how much the fees may sting you.
“If you were to spend $1000 with a $3000 limit and took 12 months to repay this, you’d be charged $240 in fees, at an effective rate of 41.70 per cent.
“In comparison, if you were to take 12 months to pay $1000 off a credit card with no annual fee and an interest rate of 15 per cent, you’d be charged around $84 in interest.
“So the interest-free card would actually cost $156 more than a regular credit card in this specific example.”
Australian Financial Review banking specialist James Eyers says the StraightUp card is another example of growing competition in payment options after PayPal entered the instalment market. He says it is likely to put pressure on the likes of Citi, Latitude and Macquarie to experiment with their offerings.
Visa’s group country manager in Australia, Julian Potter, said Australians’ appetite for credit remained strong, but there was a growing demand for “enhanced transparency, certainty and simplicity”.
“The NAB StraightUp Visa card provides these qualities and given Australians’ tendency to embrace new ways to pay and manage money, we expect it to be welcomed into the market.”
NAB chief executive Ross McEwan is set to appear before a House of Representatives economics committee on Friday, along with the CEOs of CBA and ANZ, to talk about pressures on credit card portfolios.
The Australian Securities and Investments Commission (ASIC) said in a 2018 report that credit cards were a debt trap for more than one in six consumers who used them.
Reserve Bank data released earlier in the week shows that during the pandemic customers have shifted away from credit cards in favour of debit cards and are paying their credit card balances faster.
It says there has been a 10 per cent drop in the number of credit cards on issue in the 12 months to the end of July and a 14 per cent fall in the value of transactions.
CommBank has launched a similar style no-interest credit card product today.
Do you see value in the NAB StraightUp card? Do you believe there is “enhanced transparency, certainty and simplicity”?
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