SYDNEY, Australia—Two banks in this country have now rolled out a new offering with a feature believed to be a first: a no-interest credit card.
But the credit extended by the cards isn’t free and the pricing on the cards can actually make purchases more expensive than cards that charge interest. Nevertheless, the two banks say they appeal to younger consumers.
National Australia Bank (NAB) has introduced the card called “StraightUp” that offers a fixed line of credit and a monthly fee that is refunded if the cardholder maintains zero balance and doesn’t use the card. It followed Commonwealth Bank of Australia, which introduced a no-interest card earlier in 2020, according to the Wall Street Journal.
Rachel Slade, a personal banking group executive with National Australia Bank, said its offer came at the suggestion of a bank employee. She said the initial response internally was, “What? That’s not how a credit card works.”
Both banks have introduced the cards in response to declining card volume during the pandemic.
The Card Fees
Fees on the cards offered by NAB and CBA vary according to credit limits, according to the Journal. For example, a balance of 1,000 Australian dollars, equivalent to US$777, on CBA’s no-interest card could accrue nearly US$373 in fees over 40 months if there is an outstanding balance each month, the Journal reported. The same balance on the NAB card repaid at that product’s minimum rate would cost about US$225 over 29 months.
In both cases, that is more than the interest accrued by a customer making the same repayments on a regular card with a 16.6% annual percentage rate, the typical rate in Australia, the Journal noted in its analysis. “And like with other cards, customers are required to make minimum monthly repayments on any outstanding balances.”
The Journal further pointed out In Australia, buy-now-pay-later services don’t need to verify income or check existing debts held by users, which makes it easier for consumers to gain access to those products than a traditional credit card.
Seeking Younger Consumers
NAB’s Slade told the Journal NAB’s no-interest card aims to attract younger customers who don’t necessarily have strong ties to the bank, illustrating a broad concern among traditional lenders that they are losing out in the battle for Millennials.
In the three months since launch, the StraightUp card was among NAB’s three most popular credit cards among new applicants. Demand was strongest among customers under 40 years old, the bank told the Journal.
The Journal added the “experiment isn’t being replicated in the U.S. where most credit-card issuers charge interest when cardholders carry balances. But if they prove to be successful, Australian banks’ no-interest cards could drive change in other markets.”