Kiwibank expands horizons with low cost credit card

By PAULA OLIVER

Kiwibank has expanded into the credit card market, offering a low-interest card aimed at people who will use the credit facility rather than pay off the balance every month.

The state-owned bank has opted to work with MasterCard, because it believes that company is more committed to New Zealand than Visa.

The Kiwibank MasterCard continues the bank's aggressive attack on the fees and interest rates of its big-five competitors.

At 12.9 per cent a year, the interest rate of the card is below that offered by most others.

Many rivals charge about 19 per cent. Larger banks do offer low interest-rate alternatives, but the annual account fees are usually higher than the Kiwibank card, which is set at $38.

It also incorporates a 55-day interest-free period for purchases.

Kiwibank chief executive Sam Knowles said yesterday that the new card proved that the interest rates of the larger banks were inflated. His bank could make a "very adequate" profit on its offer.

The new card was clearly aimed at customers who would use it to borrow.

No agreements existed for a loyalty points scheme, and it was not the bank's intention to go down that road.

"The people who primarily use a credit card just to collect loyalty points and don't borrow any money on it, well, we're not targeting those people," he said.

"One of the reasons banks have been successful in maintaining inflated rates is that people haven't understood the value of loyalty.

"They think that they're getting a good deal with the points, but they're only worth about 0.2 to 0.4 per cent."

Kiwibank is entering a growing sector .

New Zealanders owe $3.6 billion in outstanding credit-card balances. The average card balance is $1700, and spending is increasing.

As much as $18 billion is spent on credit cards in a year.

Kiwibank's new card is expected to offer an attractive alternative to the big banks, but research has shown that people may take some convincing to switch.

Massey University senior banking lecturer David Tripe yesterday said that while Kiwibank's card was a good deal, surveys showed that people were insensitive when it came to credit-card interest rates.

A New Zealand survey which asked people about their card's rate found that 65 per cent didn't know what it was. Of those who did answer, fewer than half were correct.

Knowles agreed with Tripe, and said that Kiwibank's challenge was to educate customers so they realised they were paying too much elsewhere.

He said he hoped the new credit card would tip the balance in favour of Kiwibank overall and bring in new customers from other banks.

Kiwibank was signing up banking customers at the rate of 400 a week, and it now had 135,000.

Knowles said pilot programmes showed the new card worked well internationally.

MasterCard's experience in supporting low-interest cards in Australia was helpful, he said.