Card Rates Under Attack
Sydney Morning Herald
Tuesday August 18, 1998
Interest rates on credit cards are set to fall as competition in the $30-billion industry intensifies, with a surge of cheaper products entering the market.
FAI Home Loans introduced a 6.95 per cent credit card yesterday - easily the lowest interest rate in the card market - and follows AMP Banking's 9.95 per cent introductory offer, announced last month.
Credit unions also have begun offering low rate debit cards, which analysts said would eventually feed through to greater competition in the credit card market.
Policy analyst at Market Faxts, Mr Martin Fox, said: "Banks haven't really competed on price but now they will have to do so more and more. AMP Banking has introduced a low rate credit card and AMEX's blue card is also cheap." Both offer interest rates of 13.85 per cent, though AMP's includes a six month introductory offer of 9.95 per cent.
Since June 1996, official interest rates have fallen by 2.50 percentage points. Home loan interest rates have dropped by 3.05 percentage points, according to the Reserve Bank, while business loans are 2.75 percentage points lower. But credit card rates have fallen by just 1.40 percentage points.
FAI's credit card is available to home loan customers only and offers a 40-day interest free period. The rate undercuts its major banking rivals by more than eight percentage points.
"The most important thing for customers is that they look for the home loans that suit them. That way they can make significant savings on transaction account and credit card fees. But this FAI product is the cheapest credit card on the market," said an analyst at Cannex Australia, Ms Cassandra Williams.
Higher interest rates on credit cards have proved profitable for banks, with insiders saying return-on-equity for banks' credit card operations were about 40 per cent.
FAI managing director Mr Mike Halloran said there were now no "sacred cows" in lending.
"Innovative, efficient players will always be looking for openings to provide better, cheaper and more efficient service and products to borrowers," he said.
FAI's card is unique in that other low interest rate payment cards - normally debit cards - work off lines of credit, such as overdrafts, and do not have interest-free periods. Credit unions offer low rate debit cards based on overdrafts.
Ms Williams said that where EFTPOS facilities were available, debit cards were very similar to credit cards without an interest-free period.
Consumer groups have regularly complained about inflated credit card interest rates. Some lenders, including National Australia Bank and ANZ Banking Group, waive fees if a customer also takes up a home loan but do not cut interest rates.
Meanwhile, Wizard Mortgage managing director Mr Mark Bouris yesterday called on all lenders to provide an effective rate of interest on home loans. The rate takes into account establishment, transaction and continuing fees.
Australian Consumers' Association analyst, Ms Mara Bun, supported Mr Bouris, saying it would allow consumers to better compare home loan deals.
ON THE CARDS What they charge % FAI Visa 6.95 AMP 13.85 AMEX 13.85 CBA V/M 15.10 NAB V/M 15.25 Westpac V/M 15.40 NZ V/M 15.45 V=Visa, M=Mastercard Source: Cannex Australia
© 1998 Sydney Morning Herald
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