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Rosie Murray-West
By
October 19, 2017

Get Ready For The Credit Card Revolution

rush towards credit cards.png

The way in which customers pay for goods and services is changing all the time, but two major events are likely to create a rush towards credit cards in the next few months.


The first is the well-publicised collapse of Monarch Airlines earlier this month which saw 110,000 people airlifted back to the UK in Britain’s biggest peacetime repatriation. After the collapse, three quarters of a million Monarch customers were told that flights had been cancelled, and many of them suddenly discovered that how they had paid for those flights really mattered.

 

Those who had paid with a credit card were given their money back, no problem, but those who had used a debit card discovered that there were questions over refunds.

 

The difference is between Section 75— a piece of legislation that requires credit card providers to be ‘jointly and severally liable’ if goods and services that were paid for on a card are not provided, and Visa Chargeback, a goodwill agreement that allows people to request money back from debit card providers if goods and services are not provided.

 

Consumer Intelligence studies have shown that customers are beginning to understand the difference. When asked in a recent survey (after the Monarch collapse) 80% of respondents knew that their credit card offered some protection, and only 2% incorrectly said that this protection was not legally binding. Debit card users were far less sure, with 41% unsure whether they had protection, against 14% of credit card users.

Does your credit card offer you protection when buying goods and services?

Yes

80%

Yes — but it isn't legally binding

2%

No

3%

Don't know

14%


Does your debit card offer you protection when buying goods and services?

Yes

32%

Yes — but it isn't legally binding

7%

No

20%

Don't know

41%

 

Those who are aware of Section 75 protection find it a compelling reason to spend on their credit card, with 64% of respondents saying that Section 75 makes it more likely that they will use their credit card while out shopping.

 

And a surprising number of consumers had already used this protection— nearly a quarter of credit card users. Fewer had attempted a debit card chargeback.

Customers who have claimed back money from a credit card provider(s) for goods and services that have not been provided 

Yes

24%

No

76%


Customers who have tried to claim back money from a debit card provider for goods and services that have not been provided

Yes

13%

No

87%

 

The Monarch collapse highlights a powerful reason to use credit cards, but there is currently a powerful disincentive as well. Many companies (especially travel and flight providers) levy extra charges on those buying products with a credit card, meaning that more people are willing to use a debit card and take the chance. Ryanair, for example, charges 2% of the transaction total if you use a credit card, although Monarch had scrapped a whopping 3% credit card fee last December.

But from January, all credit and debit card surcharges will be banned — leaving customers with a choice about which product they use.

 

The move is likely to push more people to use a credit card. Consumer Intelligence’s study found that these charges put off a large number of customers from using their credit cards, while most identified other good reasons to use a credit card.

How offputting, on a scale of one to five, do you find charges levied at you for using a credit card instead of a debit card?

1 - Not off putting at all

8%

2

7%

3 - Somewhat off putting

33%

4

19%

5 - Very off putting

34%


What motivates you to use a credit card?

Section 75 protection

46%

Reward points or cashback

55%

The ability to pay back the money later

54%

Other -

2%

 

With the removal of the biggest disincentive, we may see consumers moving to putting all big purchases on credit cards after surcharges are scrapped. Over 40% of those who did not have a credit card listed the surcharges as a reason not to have one. That reason is about to be removed.

Why don’t you have a credit card?

I don't like the charges levied at me for using them

41%

I have no need for a credit card

47%

I have a bad credit rating

34%

I disagree with the principle of credit cards

20%

Other -

3%

 

Highlighting the good things about credit cards — balance transfers, no charges from January and Section 75 protection may be a way to pick up new customers in the coming months, as the attractiveness of credit cards to consumers grows. Offering reward points or cashback — a major motivation for 55% of credit card users — should make the offer even more compelling.

 

Andrew Buller, banking expert at Consumer Intelligence said that credit card service providers should bear in mind that customers value both rewards and protection when it comes to balancing the offer for consumers after fees are banned.

 

“Providers have a great opportunity to attract new customers but its key that they listen to the consumer,” he said. “Consumers clearly like and understand the protection a credit card can provide but they also like to receive rewards for spending and loyalty. “Some service providers are looking at reducing the loyalty and reward programmess in order to recoup the loss in surcharge fees. Listening to the consumer and getting the balance right will be key to long-term success.”


Customers value reward and protection

To learn about the way in which customers pay for goods and services is changing, and how to align your reward programme to be even more awarding, get in touch with us today. 

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