July 17, 2013
Report warns of turbulence ahead for issuers
MONTREAL - The Canadian credit card industry is gearing-up for significant competition as new account growth stalls, issuers compete for wallet-share and major credit card partnership programs change hands.
"While Canadian cardholders are receiving increasingly more attractive offers for their loyalty with richer welcome bonus offers, annual fee waivers and more value per point earned, we've also seen some Canadian banks increase penalty rates, balance transfer fees and over-limit fees," says Marc Felgar, founder and CEO of GreedyRates.ca.
The GreedyRates.ca Q2 2013 Canadian Credit Card Landscape Report, which surveyed over 100 Canadian credit cards, found that 35 per cent of the rewards credit cards surveyed offered a welcome bonus to sign-up for the card and the majority with an annual fee of $99 or more offered the equivalent of a short-haul flight as a welcome bonus. "We expect competition to acquire new cardholders to increase in the coming quarters as issuers try to take advantage of the turbulence caused by Aeroplan possibly moving from CIBC to TD. These will be unprecedented times for Canadian cardholders," says Felgar.
The report also revealed that the Canadian market lacks aggressive interest rate based competition. There was only one published zero per cent balance transfer offer, for a promotional period of 12 months. This is a very different competitive dynamic than the U.S. or U.K. where zero per cent balance transfer offers are standard and last as long as 27 months.
That said, the survey revealed there are low interest rate credit card options for cardholders who carry a credit card balance in Canada. The average interest rate for low interest cards is 12.2 per cent compared to 19.7 per cent for all other cards. There are several stand-alone low interest credit cards as low as 9.9 per cent with no annual fee. However, most of the big five retail banks offer low-rate options for an annual fee ranging from $20-$50.
"The increasingly rich rewards programs offered by Canadian banks, while in large part funded by one of the world's highest interchange fee schedules, is also having an impact on penalty rates and hidden fees, as banks try to maintain profitability," says Felgar. “The report revealed more credit card issuers are introducing and increasing their penalty rates by as much as eight per cent for a missed payment to an interest rate as high as 27.5 per cent. In addition, several issuers have announced increases to balance transfer fees and over limit fees. We have also seen cardholder agreement terms being amended in such a way as to make it easier for cardholders to get penalized.”
The GreedyRates.ca Canadian Credit Card Landscape Report is conducted quarterly, using offer data from the leading Canadian card issuers' websites.