The growth in new credit cards
There has been an exciting surge of new credit cards entering the South African market. What has been remarkable about this growth in new credit cards has been the fact that they are not being issued by banks and credit card specialists any more, but by companies with strong consumer brands in other areas, such as retail (Woolworths, Edgars), airlines (kulula.com), telecoms networks (Vodacom) and insurance (Discovery).
More recently, we have seen one of the worlds best known consumer brands, Virgin, enter the South African credit card market.
Banks are providing a wholesaling role, in the form of the credit management and support services for these card offerings, while the card issuers are providing the branding and other special enhancements. This marks another break in the traditional role of a bank as a one-stop shop with consumers now holding cheque, current and savings accounts at one institution and their home loans, vehicle finance and credit cards at other providers.
There are many important observations to come out of this surge in credit cards. One is the lowering of barriers to obtaining credit, so that many people who never owned or used a credit card before are being offered them. Encouragingly, however,.legislation such as the new Credit Act should offer consumers transparency and protection in this burgeoning market.
The second observation is the separation of credit - the commodity - from the value-added offering that the issuer can give. In the past the allure of a credit card was the credit limit available, and the status attached to that particular limit. This now is only part of the offering - arguably less important - with issuers providing other benefits and value-adds too, such as discounts, no service charges, and so on.
This aspect of a credit card's attraction - its value proposition, as it were, will increasingly be the deciding factor in the mind of the consumer before applying for or using a credit card. Consumers will no longer look superficially at charges or interest rates, but holistically at the benefits each card offers.
To illustrate this point I have taken a simple example of a silver DiscoveryCard (the most common option), using the entry level Blue Vitality status, giving the lowest level of discounts. The member will pay an annual card fee of R140 plus R185 for optional Discovery air miles.
Let's assume the person spends R3 000 per month, of which R2 400 is spent at DiscoveryCard partner providers, giving a discount of R165 per month.
Over 12 months, the person will have received cash back of R1 980, or net cash back of R1 655 after card fees. Clearly, the value generated by the card far outweighs the nominal annual card fees - and this example does not take account of other benefits like travel miles and the homeloan discounts available to DiscoveryCard-holders.
These themes are likely to deepen and extend in the next few years, as more and more credit card issuers come to market with varying and possibly more complex offerings. Comparing the different offerings is likely to become more difficult in itself, and there is perhaps a space in the market for those who can compare and advise on the various offerings available.
But just as more issuers come to market, so consumers are likely to consolidate their credit card spending on the cards in their wallets that offer them the best overall value proposition. Those cards that provide the vanilla credit offering will be used less and less, and will end up either only as a back-up, or being cancelled by the owner.
