Back on the 20th August, I reported on the curious story of the BA Air Miles card promotion and how the promotion had exceeded expectations, despite the BA strike problems. I questioned whether it was a case of there is no such thing as bad news, or whether other factors, such as unexpectedly strong Q2 economic growth, had played a part.

BA’s autumn sale started at the beginning of October and once again includes great promotions on the British Airways credit cards. However, the market conditions are a bit different now.

There are no strikes looming, so BA is not headline news at the moment. The US has just issued a terror alert caution to US citizens travelling to Europe advising them to be wary of crowded places.  As a considerable part of BA’s business is transatlantic flights, this may impact sales. The US economy appears to be slowing downand, with the comprehensive spending review about to take place in the UK, these factors might also apply downward pressure on BA ticket sales.

Nevertheless, one pound sterling recently bought nearly 1.6 USD, so perhaps some UK shoppers will be looking to take a trip to New York to do their Christmas shopping. The new credit card promotions do provide consumers looking to travel in the next three months with some great incentives. It will be interesting to compare the relative performance of the summer and autumn promotions. The offers this time round are once again very strong.

The BA Amex credit card offers 8,000 bonus BA Miles when you spend £500 in the first three months of card membership. It has a typical 19.9% APR variable.

The BA Amex Premium Plus card offers 18,000 bonus BA Miles when you spend £3,000 in your first three months of card membership. The Premium card has a typical APR of 19.9% p.a. (variable) on card purchases and an overall APR of 46.0% (variable), which includes a £150 membership fee.

Naturally, terms and conditions apply and the offer on both cards ends on 8th November 2010.

For consumers looking to subsidise a trip through their Christmas and winter shopping, these offers provide a useful addition and to the Air Miles cards currently available.

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The growing strength of the ‘dual hook’ cards, which combine strong 0% promotional periods on both balance transfers and purchases, has had an impact on the popularity of other card sectors.

The obvious casualty has been the straight purchases cards, which traditionally have had just a 0% promotion for new purchases. They were the favourites of the retailers, who normally offered rewards points on the purchases made with the card.

The Amex Platinum Cash back card still offers 0% on purchases for the first six months. However, it is really a rewards card as it offers 5% cash back for the first three months, up to a limit of £100 per month. Pure purchase cards are now virtually extinct.  Arguably, the current Tesco card, which offers a market leading 0% on purchases for 13 months, is still a purchases card, but it also now offers  0% on balance transfers for 9 months, so has a strong ‘dual hook’ feature.

The other, perhaps less obvious sector to be affected is the low rate card sector. Low rate cards do not offer any 0% periods, but instead offer a low rate of interest across all amounts borrowed. They can be a competitive alternative to a personal (unsecured) loan. The best in market personal loans currently offer about 7.6% typical APR (variable and usually on loan amounts exceeding £7,500), whereas the Barclaycard Simplicity card offers 6.8% typical APR (variable) on purchases and balance transfers, and the Halifax Easy Rate offers 6.9% typical APR (variable). If these cards provide a competitive alternative, why have they become less popular over the last 6-12 months?

It may be more attractive for some consumers to take out a ‘dual hook’ card with a strong 0% purchases element (e.g. 12 months), and once this period comes to an end, roll the debt over on to a strong 0% balance transfer card (e.g. 16 months). This effectively gives up to a 28 month interest-free period in which to pay back the loan amount. When compared with paying a minimum of 6.8% APR typical (variable) over the lifetime of the loan on a low rate card, the combination of strong 0% BT deals and strong ‘dual hook’ cards would seem to account for some of the decrease in popularity of the low rate cards.

When the new Consumer Credit regulations come into force on 1st February 2011, it is likely that low rate cards will become more attractive once again. In the meantime, the rise of the ‘dual hook’ cards has had an impact on different ‘other’ sectors of the credit card market.

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Back on 15th July, I suggested that 0% Balance Transfer and Purchases products, often referred to as ‘dual hook’ cards, had gone mainstream. In previous blogs I have been charting the progress of 0% balance transfer lengths over the course of the year. Yesterday, MBNA launched a market-leading 16 month 0% Balance Transfer card and a market-leading 12/12 ‘dual hook’ card.

This suggests that the story of both these sectors remains very much alive. MBNA, and its endorsed brand Virgin, were  active in 2009, maintaining a strong product mix throughout the financial crisis. However, this year they have been far less aggressive, until now.  Perhaps a bit late in the day, it seems that MBNA does not want to be left out in the push for acquisitions before the end of the year, and agrees with other issuers that these are the two most interesting product sectors to focus on.

MBNA has always been known for having high acceptance criteria – only customers with very good or excellent credit scores can successfully apply. So it would also be natural for them to find these two sectors attractive.

Questions remain as to whether the Virgin credit card, currently offering a 14 month 0% balance transfer period will now move closer to the current market-leading threshold of a 16 month period, and whether any other issuers will be prepared to go even longer.

It will also be interesting to see whether any issuers in the ‘dual hook’ space are prepared to breach the current market leading 12/12 barrier and introduce a longer period.

All said, it suggests there will be a few more twists and turns in these sectors before the end of the year.  Based on current trends, it should be good news for consumers as the strong product offerings are likely to continue for a little while yet.

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Over the weekend, the RBS and NatWest brands dropped their 0% balance transfer (BT) periods from 16 months to 15 months. RBS/NatWest is the first major issuer to lower rates on its 0% BT cards since competition between issuers pushed up 0% Balance Transfer lengths to 16 months. Is this likely to start a trend downwards among other issuers, or will others still want to maintain market-leading products to acquire new customers?

As RBS/NatWest was one of the first major issuers to move to sixteen month 0% Balance Transfer cards, they have probably acquired a significant quantity of new customers. At the height of the financial crisis, they restricted their offers to existing customers only, so they have tended to be fairly cautious on the acquisition side. On the other hand, the change could signal that they are concerned that the UK economic recovery is starting to plateau.

They may also be preparing themselves for a slightly bumpier ride as we move into the end of the year and the beginning of next year. The government’s Comprehensive Spending Review, due to be announced on 20th October, is likely to detail significant public sector job cuts. The unemployment rate is tracked carefully by credit card Issuers as there appears to be a direct correlation between the rate of unemployment and the rate of credit card payment defaults. Early next year, the VAT rise to 20% on 4th January will impact consumers’ purchasing power. The implementation of the new Consumer Credit Directive on 1st February 2011 is also likely to impact credit card issuers, although exactly how is still a matter for debate (and will be the subject of later blogs).

Time will tell. It will be interesting to see how the other issuers respond to the RBS and NatWest change and whether it will result in a lowering of market-leading BT periods. Alternatively, other issuers, who have to date this year been relatively quiet, may take advantage and fill the gap. It will also be curious to see whether any changes have any follow-on impact to the 0% Balance Transfer and Purchases, the so-called ‘dual hook’ products (discussed in a previous balance transfer and purchases blog).

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British Airways (BA) has a reputation, amongst other things, for strong Airmiles programmes and, recently, for employee disputes. While there may not be a link between these two features of BA activity, a curious thing happened this summer.

The BA Airmiles credit card has always been a decent rewards credit card performer. During the strike action in May, the card performed less strongly, as may have been expected. However, since the strike ended, the card has attracted significantly higher levels of interest. When BA runs a ticket sales promotion, it is usually accompanied by a BA rewards card promotion. Often these include additional air miles as part of the promotion bonus. Nevertheless, the additional popularity of the rewards card took industry insiders by surprise.

It is true that the promotional offers this summer were strong. Could it also be evidence that there really is no such thing as bad news? Perhaps there is another explanation. The UK economy grew surprisingly fast during Q2 with exporters doing well. I wonder whether the popularity of the BA rewards card, given its benefits to the business traveller, reflects this upturn instead.

Nevertheless, as memories of the summer strikes fade, it will be interesting to see if the autumn promotions from BA are as strong, or are as popular, as those we saw in the summer. It will also be interesting to see whether this summer’s level of interest in the BA rewards card is also maintained, as no strikes are planned, and there is talk once more of a double dip recession.

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If you compare the number of 0% balance transfer cards available in the market with those available for credit building or re-building, the results are shocking. For example, on the CompareandSave.com Balance Transfer table we feature over fifteen 0% balance transfer cards. On the Credit Building card table, we feature only four cards. The contrast in choice is similar on other leading credit card comparison sites.

I find this strange. In tough economic times, a growing proportion of the population are likely to find credit builder cards the most suitable option. However, relatively few issuers offer this type of credit card. At face value, it would seem that the risks of default in this ‘near prime’ demographic are likely to be higher, therefore the sector would be less attractive to issuers.

On the other hand, credit building cards normally restrict the credit limit to a maximum of £1,500. When you compare that to the high-end cards, the exposure per card can easily be five times greater, significantly increasing the risk per card for the issuer.

Capital One and Barclaycard are the two major providers that are present in the credit building space. It is fair to say that Barclaycard features in the higher credit score end of the range, whereas Capital One cards are more accessible to a wider range of applicants. I wonder whether the other big providers may look to enter the space and provide consumers outside the ‘prime’ market with some welcome choice and innovative products. Fingers crossed.

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This week the major UK banks have been publishing their half-year results.  Royal Bank of Scotland (RBS), last but not least, published its results this morning. While the headlines have been focusing on the bank’s return to profitability, the most interesting credit card information was tucked away in Barclays’ results.

The Barclaycard division revealed a 15% drop in profits in its US credit card operation due to tighter US regulation.  The UK is facing similar tighter regulation in the UK, which comes into effect in January 2011. The details and execution will be the subject of later posts on this blog, and are covered in other articles on CompareandSave.com.

In summary, the new regulations aim to provide consumers with greater protection and transparency over charges. The aims are good. If, as Barclaycard’s US results indicate, the sector becomes less attractive to issuers as a result, will it impact on the range of credit card products and innovation we are likely to see in the future?

Early indications from the US would suggest yes, at least initially. APRs have risen, 0% ‘teaser’ periods on balance transfers and purchases have reduced in length, and issuers have rationalised the number of cards in their portfolios. During the first half of next year in the UK we may see fewer, less interesting credit card products emerging. On the other hand, we will have more information about how the various fees attached to our plastic friends actually work. A trade off that may invoke mixed reactions depending on how you currently use your credit card.

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This may be tenuous, but I suspect there is life in the old cash back cards yet. Credit card reward schemes have always provided consumers with some interesting propositions. Incentives to ensure consumers use their credit card have come in all shapes and sizes – airmiles and cash back led the way.

As the big supermarkets have entered the finance market, and rewards schemes like the Nectar card have become established, credit card issuers have followed with a range of points-based retail schemes. Early this year Barclaycard launched its Freedom rewards scheme and Egg beefed up its points programme. American Express, the flagship issuer of reward programmes, has also had some wonderful airmiles promotions running recently.

From a comparison perspective, it quickly becomes hard to compare the different rewards schemes in a meaningful way, as they work in such a variety of ways. Depending on how you decide to use a particular rewards card, it can be of greater or lesser benefit.

In these uncertain, confusing times, a simple, easy to understand reward, which can be used universally, may have appeal. The traditional cash back card would seem to fit the bill.  Issuers such as Capital One and RBS/NatWest with their World cards have been testing the water recently. Could they begin to compete with the Amex Platinum cash back card? Could cash back cards start to take on the points-based rewards cards and become king of the rewards once more?

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For consumers, perhaps one of the most useful credit card developments over the past 18 months has been the expansion of the so called ‘dual hook’ cards. These cards offer identical 0% periods on both balance transfers and purchases.

This means that you can use a single card for transferring a balance, and also for making purchases, taking advantage of the superior consumer protection provided by credit cards.

Section 75 of the Consumer Credit Act 1974 protects the purchaser using a credit card against mis-selling or defaults by the seller on purchases costing between £100 and £30,000.

A year and a half ago, Halifax and Bank of Scotland (HBOS) led the way with their ‘9/9’ card – 9 months 0% BT period and 9 months 0% period on purchases.  Last year, Sainsburys joined them with a competitive ‘10/10’ card.

The ‘dual hook’ market has become a natural battle ground for attracting customers between the established high street banks (like HBOS), supermarkets (like Sainsburys) and smaller niche players (like the AA) which are more retail focused.  This year Virgin caused a stir with its 12/12 card and this week Barclaycard have rolled out its 12/12 card – a sure sign that the dual hook market has gone mainstream. Due to the strength of the dual hook offer, they are beginning to replace the more traditional 0% purchase cards.

With 0% balance transfer periods potentially lengthening, could a 13/13 be on the cards? Probably not, as issuers will want to differentiate between their 0% balance transfer cards and their dual hook cards. Nevertheless, the recent developments in this sector of the market provide consumers with strong and flexible credit card alternatives to the more traditional cards.

About this blog

I’m Alex Acton, the CompareandSave.com author of the ‘On The Cards’ blogs about my take on the credit card market, what is happening, and how it may affect you if you wish to use a credit card.

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Update 16/07/2010:

The 0% balance transfer market is certainly hotting up fast! Today, NatWest and RBS are launching their Platinum cards with 16 month 0% balance transfer offers. These are the first 16 month deals which have been available this year.

It will be interesting to see whether the other issuers who traditionally offer cards with strong 0% BT lengths follow suit. I suspect that the battle for the balance transfers has a way to run during this hopefully long, hot summer.

Original Post

About this blog

I’m Alex Acton, the CompareandSave.com author of the ‘On The Cards’ blogs about my take on the credit card market, what is happening, and how it may affect you if you wish to use a credit card.

While England and UK sports performances this summer have been mixed, there is unexpectedly good news for anyone wishing to transfer a balance on to a new credit card. The last couple of months have seen a strong set of 0% balance transfer cards returning to the market.

If you were looking to transfer a balance to a new credit card this January, you would have had a wintry shock. Only Barclaycard offered a 15 month interest-free balance transfer period open to new customers, and by mid-March, they had reverted to a 14 month card. If you consider that last year Virgin ran their market leading 16 month 0% balance transfer card, and a number of other providers were running 15 month cards, the reduction in choice this winter was a bit bleak.

Credit card issuers were planning a reduction in zero interest balance transfer lengths this year in preparation for new legislation due to come into effect later in the year (the regulatory changes are a topic for a later blog).

However, since May, competitive pressures among issuers have led to an unexpected increase in both the 0% BT lengths available and also the number of issuers who offer them. At the time of writing, there are six cards from mainstream credit card providers who offer 0% balance transfers for 15 months.

Whether any of the issuers break ranks and move to a market leading 16 month card in the coming months is a question. A preferable alternative for some issuers may be to relax their score card criteria and accept a slightly wider range of customers. Whether we begin to see a reduction in the 0% BT lengths in the autumn will also be interesting. ‘On The Cards’ will keep you posted.

For customers wishing to transfer a balance to a new credit card this summer, the choice is certainly more attractive than it was at the beginning of the year.

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