Many card issuers offer the budget facility as a vehicle for card holders to consolidate their existing debt and — in return — they offer customers an incentive in the pricing, in the form of preferential interest rates.
There’s mileage in this for the banks, too. In many cases that reconsolidation is repaid over a longer period, to the benefit of the card issuer.
”Ideally they want good balances paid back over a longer period, which means it could be highly profitÂable for that card issuer,” Absa’s Doug Walker says.
He says the South African card market is by no means fully mature yet. In the United States, for example, use of credit cards is prolific. It’s a mature market with a proliferation of rewards and loyalty schemes, private label (in-store) cards, loan cards — almost a card for every branch of business activity. The African market, by contrast, is still in its relative infancy.
Walker believes ”we are going to see a lot more maturity coming into the market. You are going to have cards that are standard, non-reward, good value, low-priced products as well as rewards cards, which possibly carry a slightly higher fee but which would enable them to be used in a different way. It’s a very diverse market and one that will become more diverse going forward.”
Retail store cards also may undergo an evolution, albeit for different reasons.
Traditionally, private label or in-store cards have not generated revenue on high-volume, low-margin items. Generally their turnover has been acquired from low-volume, high-margin items, where retailers have used in-store cards to entice new customers to buy the goods.
Walker points out that, with the National Credit Act now in place, customers with existing in-store cards who apply for an all-purpose bank credit card for instance, may find that the in-store credit limits could affect their affordability rating — and therefore their ability to obtain a credit card.
”So we are moving away swiftly from a world where customers will have a card for separate stores — because in a situation where all these credit limits are aggregated it may even prevent them from obtaining a home loan.”
Walker reiterates: ”Credit cards by themselves are not responsible for driving up debt. The whole point of a credit card is that it’s a transaction tool to be used at the point of sale. Should you wish to pay it off over a slightly longer period, the choice to do that is yours as a consumer. If you use a credit card responsibly, it remains one of the cheapest products on the market.”