- In an Australian-first, NAB has launched an interest-free credit card allowing Australians to accumulate balances of up to $3,000.
- It comes as credit card use is in rapid decline, particularly amongst young people.
- The move is seen as an attempt to claw back some customers from buy now, pay later platforms, which have boomed in recent years.
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Afterpay, Zip and friends may have taken a bite out of the credit card market in Australia, but one of the big four banks is trying to fight back.
NAB, Australia’s fourth-largest retail bank, launched the country’s first interest-free credit card on Thursday, as it attempts to claw back some market share.
“We started with a straightforward idea – to create a card with no interest, no annual fees and no late payment fees,” personal banking group executive Rachel Slade said.
“This is the result – a simple, easy to understand credit card that can be used anywhere Visa is accepted online or in-store.”
Given credit cards, NAB’s offering included, have profited from charging customers exorbitant interest rates and a smorgasbord of fees, it’s a major departure for a bank.
The so-called ‘StraightUp’ card offers limits up to $3,000 and charges no interest, and no annual or late fees. Instead, NAB says customers will only be charged a monthly sum, determined by their balance and only payable in months they either use the card or have an outstanding balance.
They’ll also have to make mandatory minimum payments each month towards their outstanding balance, ranging from $35 to $110 depending on their credit limit.
Taking on buy now, pay later
The experiment with interest-free credit is a foray into the unknown for a major bank, but even NAB is forthright on its reasons why, explicitly differentiating its product from products like Afterpay.
“Unlike buy now, pay later services, NAB StraightUp Card offers a continuing line of credit, is available to use anywhere Visa is accepted, has no late payment fees, and allows customers to repay balances over a longer period of time,” NAB said.
Australians terminated nearly 400,000 credit cards in the four months to July, with platforms like Zip – excuse the pun – claiming credit.
“Credit cards have not really evolved in recent years. But our customers’ needs and expectations are changing and we want to change with them,” Slade acknowledged on Thursday.
Unlike buy now, pay later platforms, NAB will also screen customers using responsible lending measures to determine whether customers can actually pay their debts.
However, while the bank may have buy now, pay later platforms firmly in its sights, it’s unclear exactly how attractive its proposition will be to its stated target market of people aged 18-34, the principal users of credit.
For one, market leaders Afterpay and Zip are already being actively used by around 5 million Australians, with a smattering of other competitors not so far behind them. Having already established themselves, and being integrated at the checkout, it may be difficult to make them budge, without offering a serious incentive to do so.
There also appears to be little to encourage customers to pay off their debts quickly, with no late fees or interest fees to avoid.
With most of Afterpay and Zip’s growth prospects lying overseas, neither may be too concerned with this experiment. In fact, in a way it may actually prove helpful.
For years, buy now, pay later has avoided being regulated like credit cards, arguing they are superior products. In particular, they’ve leaned on the argument that regulators shouldn’t contain fintechs that provide competition to incumbents like the banks.
NAB may have just handed them the perfect case study.