A credit card is a common product today. But even bankers admit that not all credit card holders know how to use credit cards wisely and get the maximum benefit.
What banks are guided by when creating new credit cards, two speakers told: Alexander Kalinkin, Executive Director of the “Client’s Wallet” division, leader of the “Credit Cards” cluster and Denis Okhrimovich, Marketing Director of the retail business of Sberbank.
– There is a stereotype that a credit card is evil, and you should use it only as a last resort. This is true?
Alexander Kalinkin: This stereotype is still alive. It’s just that every year there are fewer and fewer people who think that credit cards are evil. The general level of financial literacy is increasing: gradually people begin to understand the basic principles of using a credit card, what is an interest-free period and how it works.
Denis Ohrimovich: A change in the consciousness of our country began to occur a few years ago. If earlier a credit card was perceived more as a credit tool for making large purchases, now we see that with the help of credit cards you can make daily purchases. Today, the top 3 categories of goods that our country does not pay for with credit cards include purchases in supermarkets, household goods and clothing. People are choosing to use credit cards for normal, day-to-day expenses due to the fact that cards are becoming more accessible and understandable. Many banks are looking to simplify this product and make it more accessible to a wider audience. If you have a credit card with no annual fee, long interest-free period and comfortable credit limit, using such a card for daily purchases becomes more profitable than using a debit card.
– Then what is the benefit of the bank?
BEFORE.: The bank, of course, earns on interest – not all clients have time to pay off the debt during the grace period. Then the bank will earn on interest. In addition, the bank earns on trade turnover. In addition, when paying for purchases with a card, a merchant pays a commission for acquiring. This commission is shared between the acquiring bank and the bank that issued the card. Banks also make money from commissions for cash withdrawals and transfers, and some banks still charge an annual service fee. But in general, you need to understand that banks are not faced with the task of making money on a single product. It is more important for the bank to provide a wide choice of such products that would cover the needs of the client as much as possible. On some products, the bank will earn more, but on some it will not earn anything.
— What is important for a client to pay attention to when choosing a credit card, so as not to be disappointed later?
BEFORE.: I would advise clients to pay attention to things that will ultimately affect subsequent costs. This is primarily a fee for the card, or rather, its absence, and an interest-free period. When you see an advertisement in which a certain bank promises a fairly long interest-free period, you think that for all the days promised by the advertisement you will not pay interest on any purchase made during this period. This is often not the case, especially with banks that are particularly active in promoting their credit cards with a long grace period.
The interest free period works like this. You make a purchase, for example, on January 1st. With regard to it, the interest-free period is valid until April 10. For the next purchase that you make, for example, on February 1, the interest-free period is also valid from the date of the first purchase and will no longer be 100, but 70 days. And for a purchase made on April 5, your interest-free period will be 5 days. Unlike competitors, the credit SberCard has a completely understandable and profitable interest-free period. In a similar situation, for everything that the client buys in January, he will have 90 days to return the money without paying interest. For all purchases made in February, the client will again have 90 days to return the debt.
A.K.: Banks also offer a third option, when the same interest-free period of 120 days looks different, and the client is offered to return the money spent for three months without interest within one month. It sounds attractive, but try to return in a month everything that you spent within three!
In addition to a long interest-free period, banks saturate credit cards with other features that are attractive to the client. For example, they give a low rate for a limited period of time or for the fulfillment of certain conditions, for example, for turnovers on the card. Today, some banks allow the client to postpone the date of payment on the card, adjusting it, for example, to the date of the salary. In other words, the conditions have become noticeably more attractive than they were a dozen years ago, but it has become much more difficult to understand them.
— What mistakes of credit card owners most often work in favor of the bank?
A.K.: The first mistake is to get into the wrong bank and choose the wrong product that the client needs. For example, when a person is chasing the longest interest-free period, and then it turns out that the interest-free period offered by the bank, despite the beautiful numbers, works absolutely inconveniently for you.
The second common situation is to withdraw cash from a credit card or make transfers, which, like cash, are subject to a commission and an increased interest rate. It is not critical when such withdrawals are one-time cases, since for many a credit card is a lifesaver just for an emergency. It can be considered a mistake when, having received a credit card with a limit of 2–3 salaries, a person cashes out this limit in full. In fact, in this situation, the client uses a credit card as a consumer loan. This often happened at the initial stage of the appearance of credit cards. Now people do this less often, but from time to time it happens. This is a situation where the client immediately pays a commission, and the bank starts charging an increased interest rate from the first day. Taking a consumer loan for the same amount, one could spend much less. So, Sberbank’s consumer credit rate is now about 9,9%.
The third mistake of credit card holders is to withdraw cash to various kinds of electronic wallets in order to further use them to participate in sweepstakes and bet on sports. As a rule, these transactions also do not fall into the interest-free period and they also begin to accrue interest. It’s good when the rate is the same for both cash withdrawals and any purchases. Another thing is when you use a bank card with a declared purchase rate of 23%, you think that you are making a purchase and betting on sports, and the bank evaluates this rate as a cash withdrawal and starts accruing a percentage that is significantly higher than the declared one and can reach up to 50 %.
Can a customer outsmart a bank? What life hacks do advanced users have?
A.K.: Year by year, the number of customers who understand how the interest-free period works is growing. But there are other subtleties in using a credit card. So, today the “golden rule” of a credit card user is to take a card that you do not need to pay for if you do not use it. In addition, it is important to know that some banks have waived card service fees, but on the condition that the client must spend a certain amount every month. This is also not the best option. Some banks still have a monthly fee for SMS informing, which is comparable to the cost of the card. For those who consider the card as a spare wallet in our turbulent times, these options are unacceptable. In this case, you need to look for a card that will not draw money out of you every month.
The second point – paradoxical as it may seem, a properly selected credit card allows you to make savings and generate passive income. For example, you can save your salary to a savings account or deposit, paying for daily purchases with a credit card, which at the end of the year will bring you good interest on the deposit. Or buy things on sales and at big discounts immediately on a credit card, without waiting for the salary to arrive. Or do not save up for a few months for a big purchase, make it with a credit card and start using it, improving your quality of life right now. A long interest-free period allows you to do all this using the bank’s money for free.
– Is it profitable for the bank when the client switches from an older credit card to updated offers? Advertising promises that they are more profitable. It turns out that the bank improves the cards at a loss?
AK: No bank will make a product “at a loss”. We clearly calculate the economics of each proposal. First of all, it is beneficial for the bank when the client actively uses the card. When a more “expensive” product is on the client’s table, it does not bring benefits to the bank. In other words, it is more profitable for the bank to earn a little less on each client who is interested in an improved product than to earn nothing. Therefore, we are talking about a situation where the benefit of the bank is to increase active customers, albeit at the expense of reducing its own commission in each individual case.
– Now many people try to have several credit cards in their wallets. Does it make sense? Is it possible to have two Sberbank cards at the same time?
A.K.: It seems to some that several credit cards are such a life hack that allows you to “outwit the system”, withdraw from one credit card and transfer to another. But, firstly, in any case, a person has a debt to the bank at the very beginning, and secondly, this is how you can outwit yourself: different payment dates, different approaches to calculating the interest-free period for banks – all this must be kept in mind, there is a higher risk of forgetting something, going into arrears or flying out of the interest-free period. Sberbank has a condition – one credit card per client. We believe that two or more credit cards complicate the customer journey: there is a higher chance of having a negative experience if you fall into a serious delay.
What other features of credit cards are not yet known to customers, but banks are already working on them?
BEFORE.: High competition in this market has led to the fact that so far we see no reason to compete by changing the interest-free period or the interest rate. Rather, banks will work to fill their credit cards with as many bonuses as possible. In particular, as a large bank working to create its own ecosystem, Sber aims to integrate its SberCard credit into all ecosystem services as much as possible and thus provide additional benefits to the client within this ecosystem. With our card you can come to any store and buy a washing machine. Or you can buy the same typewriter at SberMegaMarket, get bonuses for it, a reduced rate on a credit card for this purchase, or meet the interest-free period and, in fact, buy this typewriter in installments without overpaying a single ruble.