Banks target interest-free periods
Banks are pushing customers away from interest-free-period credit cards to protect the value of their credit card operations ahead of proposed Reserve Bank reforms, a study by MWE Consulting indicates.
With these cards, the user incurs interest from the time of purchase but the interest rate is generally lower. The cards are seen as the most profitable by issuers but are less popular with consumers as they have no interest-free days and no loyalty programs attached.
MWE's report claims that banks are trying to migrate people from reward-based, interest-free days cards. Currently, 66 per cent of cards on issue are the loyalty-based variety, with only 12 per cent of the market made up no-free-days cards.
The Reserve Bank's reform agenda will most likely see banks unable to recoup the cost of loyalty programs from interchange fees in future, which will make these types of cards less attractive and less profitable for banks. The ANZ is particularly vulnerable, as relies more on interchange fee income than other banks. Over the past year, the ANZ has refocused its marketing campaign and tried to migrate some business customers to lower-interest, no-frills no-free-days cards.