Millennials have suddenly become the centrepoint of the financial services universe where it now seems that unless you use sexy buzz terms like ‘interest-free’ and ‘easy repayments’, you have no chance of wooing them. So now starts the game of ‘how we can make money from them in any method other than interest charges?’ Which have been the cornerstone of lending since the dawn of time.
It’s why lenders are desperate to take back some of the market share lost to the BNPL service providers Afterpay (ASX: APT) and Zip Co (ASX: Z1P) where the lifetime value of these customers extend well beyond the $1,000 credit limit applied to their BNPL accounts.
Today’s news of National Australia Bank’s (ASX: NAB) new StraightUp credit card which is aimed at millennials by offering interest-free purchase on credit anywhere that accepts Visa, is a prime example of marketing campaigns to come.
Instead of charging interest or late fees, users of the card must pay a monthly fee of $10 for a $1,000 credit limit. This would equal a $120 annual fee with minimum monthly repayments of $35 for a StraightUp card where failure to make the minimum payment will result in the card being blocked.
There is also an option to increase their credit limit to $3,000 which comes with a monthly fee of $20, or $240 annually regardless of whether you’re using the card for purchases or not.
Comparatively, NAB also offers their traditional low-interest credit card where customers can get a $3,000 limit for an annual fee of $59 but will be charged 12.99% per annum on purchases, but only if those purchases are not paid off within 55 days. Yes – that is an interest-free period of 55 days where customers can get the exact same functionality of buying now and paying later.
But hang on! Doesn’t Afterpay offer four easy fortnightly repayments? Yup, but let’s not bother calling it 56-days interest free before we slug you with late fees.
Frustratingly for many financial analysts, there is nothing new to BNPL which has just become a very well marketed concept between lay buy and credit cards.
Assad Tannous, Head Trader and Founder at Asenna Capital, summerised the BNPL market obsession succinctly in a recent tweet:
Let me break it down for those that don’t understand. If $APT is trading at 450x 2023 earnings, if you buy the entire business it will take you 445 years to pay it off assuming they are profitable by then.
— Assad Tannous (@AsennaWealth) September 1, 2020
While Afterpay has risen to become the darling of the ASX and flagbearer of Australia’s tech capabilities, investors have been happily overlooking the fact the company reported a a $19.8m loss for FY20 and is facing intense competition by service providers re-badging existing products as BNPL for the sex appeal. This includes payments conglomerate PayPal (NASDAQ: PYPL) which is preparing to launch its BNPL product shortly, and will be made available to its existing 300 million customers. Comparatively, Afterpay has 9.9 million customers globally.
Credit to NAB for launching a world-first interest-free credit card but let’s be honest, there’s nothing new about it they’re going to make more from monthly fees than they would have from the interest anyway.
If this can get tongues wagging, how many synonyms can we find for the words “interest” and “fees”.
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