By Third Party, 1 October 2010
Page last updated at 5:43 PM 01-10-2010
Following its abolition of bank fees in 2009, National Australia Bank is now set to shake up the Australian credit card sector through changes to the way in which it treats card repayments. Datamonitor believes that the move will help build the bank's 'fair' credentials, and may pave the way for other financial services providers to follow suit.
National Australia Bank (NAB) has announced that starting from January 14, 2011, substantial changes will be made to its policy regarding repayments on its credit cards. Specifically, card repayments will be applied to balances that attract a higher interest rate before balances that attract a lower interest rate. This stands in stark contrast to the traditional system of any repayments first reducing the balance which attracts a lower interest rate.
For NAB, this means that there will added pressure on its next-year interest-based revenue, given that there are more opportunities for consumers to reduce credit card costs. Nevertheless, the move is in line with the bank's current campaign slogan, 'more give, less take'. Furthermore, the strategy echoes that of last year when NAB abolished bank fees. That move proved to be effective and provided the bank with positive impacts to its overall brand, despite the obvious cost of reduced fee-based income. Indeed, Datamonitor's Australian Financial Services Survey 2010 has shown that a huge 59% of consumers who have switched their transaction account to NAB in the last 12 months did so because of better fees, the highest proportion across the four major banks.
NAB's abolition of bank fees in 2009 also forced other big banks to adopt its strategy. Pioneering strategies such as these have served NAB well in other areas too. In the home loan sector, for example, NAB claimed 35% of system growth in June 2010, the highest across all Australian banks. This was mainly due to it boasting the lowest standard variable home loan of all the big banks.
Datamonitor expects that this latest move will bolster the public perception of NAB as a 'fair' banking brand. In the context of the wider credit card industry, NAB's announcement may place extra pressure on Australian credit card issuers to review their pricing strategies.
Interestingly, despite the obvious consumer appeal of NAB's latest move, Datamonitor research shows that fewer and fewer Australians are paying interest from month to month. This may potentially place extra risk on future revenue in the Australian credit card industry, especially for those card issuers which rely heavily on an interest-based revenue model. Going forward, credit card issuers need to find innovative ways to attract new customers, rather than continuing to compete in the already crowded low-rate credit card market.
Sourced from iStock Analyst
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