National Australia Bank (ASX: NAB) has become the first of Australia’s “big four” to compete with the surging popularity of Buy Now Pay Later (BNPL) schemes by introducing an interest-free credit card to the consumer market.
In an attempt to lure financially-conscious shoppers away from the flexibility provided by BNPL, the bank has launched the StraightUp credit card offering up to $3,000 credit at a zero interest rate and zero annual, late or foreign transaction fees.
The only fee charged by the bank is a monthly account-keeper which varies between $10 and $20 depending on the credit limit and will not be incurred if the card is not used.
According to financial comparison website RateCity, the average interest rate charged by credit cards in Australia is 16.78%, while average annual fees and late payment fees are $115 and $20 respectively.
NAB group executive for personal banking Rachel Slade said StraightUp had been developed through extensive customer research and an understanding that the bank needed to innovate to keep pace with a changing market.
She hoped the card would attract young millennials who wish to better manage their spending.
“Credit cards have not really evolved in recent years, but our customers’ needs and expectations are changing and we want to change with them,” she said.
“We have created something completely different to every other credit card available today, with a simpler approach that makes it easy for customers to take control of their finances.”
Unlike BNPL services, she said the card offers a continuing line of credit, can be used anywhere Visa is accepted and allows customers to repay balances over a longer period of time.
Credit card decline
According to the Reserve Bank of Australia, the number of credit cards in Australia declined by 6.6% in 2019-20 as more consumers turned to BNPL providers during the COVID-19 crisis.
Similar research shows the number of credit cards owned by Australians has dropped by 2 million over the past year, with more than 5.3 million cards cancelled since mid-2017.
The old-fashioned credit card is now at risk of getting left behind as consumers gravitate towards online merchants offering checkout flexibility through BNPL companies such as Zip Co (ASX: Z1P), Splitit Payments (ASX: SPT), Sezzle Inc (ASX: SZL) and financial juggernaut AfterPay (ASX: APT).
Touted as today’s version of the old layaway (or layby) system, BNPL is becoming the increasingly popular option for consumers wanting to balance their budgets with the need to immediately acquire products.
According to research by business-to-business platform Pymnts.com, downloads of BNPL apps increased 162% from 2018 to 2019.
In 2015-16, around $100 million was spent through BNPL products, rising to $700 million by 2019-20.
In its 2019 earnings report, Stockholm-based BNPL Klarna – which made its Australian debut in January after cementing a partnership with Commonwealth Bank (ASX: CBA) – confirmed its monthly active user numbers hit 11 million worldwide while its platform processed an average of 1 million transactions per day.
Meanwhile BNPL favourite Afterpay reported that by end March, its total US customer numbers had risen to 4.4 million.
WorldPay Group’s Global Payments Report 2020 predicts the next three years will see a fall in credit card transactions and growth in BNPL payment methods.
The report said credit card interest rates have a reputation among some shoppers for being high and unforgiving, whereas BNPL purchases often have a lower perceived level of risk.