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Commonwealth Bank is hoping its zero interest credit card will buck the trend of declining popularity of personal lending products.
The country’s largest retail bank at its half-yearly results revealed its new Neo card made up a third of all credit card approvals in the December quarter.
CBA retail banking executive Angus Sullivan said the zero-interest card had primarily been adopted by younger customers, who are looking for more simple and easier to understand credit products.
Mr Sullivan noted innovation in payment technologies such as buy now, pay later had changed the structure of credit, and CBA’s subscription-based card had tapped into a cohort of customers reluctant to take on high interest-accruing debt.
“It’s obvious and right to observe your traditional vanilla credit card offering is seeing some challenges at the moment,” he said.
“There has been an innovation around the way you structure (credit) … and I think Neo taps into that.”
“It’s really easy for customers to get their head around it.”
CBA’s Neo card is an interest-free credit offered at limits of either $1000, $2000 or $3000. The card has a monthly fee between $12 and $22 depending on the credit limit, with fees only payable if it has been used in the month or if the card has an outstanding balance.
The head of CBA’s retail banking arm noted more than half of the take-up had come from millennials.
“I think the product design appeals to a younger demographic … they are modest credit limit cards,” he said.
“It gives (customers) a lot of control, it’s suitable for younger people’s needs when looking for credit.”
NAB has also implemented a zero interest lending product.
According to the Reserve Bank, the number of credit cards in circulation fell 7 per cent over the 12 months ending December 31.
Balances accruing interest over the period tumbled 26 per cent, with borrowers wiping away close to $6.98bn in debt.
Mr Sullivan noted the pandemic’s hit to international travel had impacted the popularity of rewards-based credit cards, which usually come attached with travel insurance.
“Without international travel at any substantial form this year (and 2020), that has been tough from a credit card transaction volume perspective,” he said.
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