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Major bank challenges BNPL with ‘cotton wool’ option

·3-min read
Portrait of unhappy stressed beautiful person looking in open wallet with shocked expression while holding color shopping bags at mall. Young model spent too much money during shopping time
Major bank challenges BNPL with 'cotton wool' option. Source: Getty

National Australia Bank (NAB) has taken aim at buy now, pay later providers like Afterpay and Zip by launching the nation’s first no-interest credit card, a move which consumer advocates say is a “step in the right direction”.

The StraightUp Card doesn’t charge interest fees, instead opting for a flat monthly fee depending on the user’s credit limit. For example, cards with a $1,000 limit will see customers charged a $10 monthly fee, which is included in the balance.

The monthly fee increased to $15 for $2,000 limits, and $20 for $3,000 limits.

Customers won’t be charged the monthly fee if the card isn’t used during the relevant statement period, and if there is no amount owing on the card at the time.

Unlike buy now, pay later (BNPL) platform Afterpay, there are no late payment fees. Also unlike BNPL providers, the card offers a continuing line of credit, and can be used anywhere Visa is accepted. Customers can also repay balances over a longer period of time.

Customers also won’t be charged foreign currency fees or annual fees.

“Credit cards have not really evolved in recent years. But our customers’ needs and expectations are changing and we want to change with them,” NAB group executive, personal banking, Rachel Slade said.

“We started with a straightforward idea – to create a card with no interest, no annual fees and no late payment fees.”

The credit card has lower credit limits than most cards, but higher minimum repayments. It also doesn’t allow cash advances or gambling transactions.

Consumer advocate Choice said it was clear the credit market needed reform, and welcome the bank’s initiative.

“For too long, banks have profited from the complexity of credit cards,” Choice banking policy expert, Patrick Veyret, said.

“The interaction of annual fees, different interest rates for purchases and cash advances, interest-free periods and minimum repayments make it hard for people to understand what they are really paying. That sees many people trapped in a cycle of debt.”

Most importantly, the StraightUp card will be subject to responsible lending laws, unlike BNPL providers who “have been designed to exploit legal loopholes,” he said.

For example, Aftepay avoids being bound by the laws as it requires installments in just 60 days, rather than 62.

RateCity research director Sally Tindall said with Australians increasingly turning their backs on high-rate credit cards in favour of BNPL platforms, the bank was “thinking creatively” to win customers back.

“With a maximum credit limit of $3,000 and a minimum repayment schedule that forces customers to pay down their debt faster, this new credit card is a step in the right direction,” Tindall said.

“The StraightUp card comes pre-wrapped in cotton wool. Customers will still get hit with fees if they don’t clear their debt, but the damage that can be done is limited.

“The low credit limit won’t appeal to seasoned credit card users, but it’s likely to attract younger Australians looking to try out a credit card for the first time.”

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