NAB hits back at Afterpay with a no interest credit card

James Eyers

Sep 9, 2020

AFR

The rapid growth of Afterpay and younger borrowers’ desire for more control over debt prompted a response from National Australia Bank, which launched a no-interest credit card on Wednesday in a banking world-first.

NAB’s StraightUp card will never charge interest to the customer, in contrast to the 20 per cent rates on many credit cards. Users will instead be required to pay a minimum amount each month (depending on the card’s credit limit), including a monthly fee. There are no late fees and no fees if the card is not used.

National Australia Bank group executive Rachel Slade.

NAB says the new Visa card is a response to the same driver that propelled the growth of Afterpay: Millennial customers wanting to reduce their use of interest-bearing cards, so debts don’t spiral out of control.

“This fits in a space between debit and credit,” said NAB’s group executive for personal banking, Rachel Slade.

“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.”

NAB’s offering is different to Afterpay in several ways. It allows customers to repay balances over a longer period of time. It does not charge late fees and it does not charge any merchant fees to the retailer. It will only be offered after “responsible lending” checks are conducted, in the same way that NAB does for credit cards. It can be used anywhere Visa is accepted.

For a $1000 credit limit, customers will be required to pay $35 a month towards the balance, including a $10 monthly fee. For a $2000 limit, the monthly minimum repayment will be $75, including a $15 monthly fee;. At a $3000 limit, the repayment is $110 per month, including a $20 fee. Customers are required to pay the minimum payment or the card may be blocked. There are no rewards attached to transactions.

Credit ‘training wheels’

Sally Tindall, director of research at RateCity, said “this card will suit some people and not others. Before signing up, users should factor in the monthly fee and how often they think they’re likely to pay it.

“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.”

Asked what incentive customers have to repay given the absence of a late payment fee, Ms Slade said: “We will get experience as we start to deal with customers. Late payment fees are an incentive to remind customers to repay, but we will be doing it in other ways, including text messages.”

The new model could put pressure on other issuers, including Citi, Latitude and Macquarie, to experiment with their offerings. It arrives after Commonwealth Bank moved into the buy now, pay later space with an investment in Klarna and the integration into its bank application. It is another example of growing competition in payment options after PayPal entered the instalment market.

“Australians’ appetite for credit remains strong, but there’s a growing desire to access it in ways that enable enhanced transparency, certainty and simplicity,” Visa’s group country manager in Australia, Julian Potter, said.

“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, particularly by younger Australians aged around the 18 to 30 bracket.”

The new card comes ahead of NAB chief executive Ross McEwan’s appearance at the House of Representatives economics committee on Friday. which asked the CEOs of CBA and ANZ last week about pressures on credit card portfolios.

The Australian Securities and Investments Commission has been critical of credit cards, saying in a 2018 report they present a debt trap for more than one in six consumers who use them.

Reserve Bank data released this week show customers have shifted away from credit cards in favour of debit cards and are paying their credit card balances faster during the COVID-19 crisis.

The Reserve Bank this week reported a 10 per cent decline in the number of credit cards on issue over the 12 months to the end of July, and a 14 per cent fall in the value of transactions. Analysis of the RBA data by consultancy McLean Roche found the number of credit cards dropped by 2 million over the past year and Australian consumers have cancelled 5.3 million cards since mid-2017.