A&L plays ace with 2% discount in card war

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The Independent Online
Alliance & Leicester, the building society due to become a bank next month, will this week launch what is thought to be Britain's first "cash- back" credit card.

Instead of holders earning points - as is the case with several other cards - Money Back cardholders will get cash rebates worth up to 2 per cent of what they spend. The move is a significant attack on the already competitive credit card market and competitors warned that the A&L will find it difficult to make the card profitable.

The deal looks particularly attractive to the half of all credit card users who pay off their bills in full every month because it will in effect give them a discount on their purchases.

Money Back is free - it has no annual fee - and has the usual interest- free period. Borrowers are charged a competitive interest rate of 17.9 per cent, with a rate of 12.9 per cent on debts transferred from other cards.

A competitor said: "You can't fail to say it's a good deal - [for users who pay off their bills] it's something for nothing."

The rebate might be worth pounds 43 for a typical card holder spending just over pounds 3,500 in total this year and pounds 106 for someone spending pounds 6,800. The rebate is 0.5 per cent for spending up pounds 3,000 a year, 1 per cent for spending above this first pounds 3,000. But for 1997 the rebates are double.

A&L said it had chosen this type of card because it had to do "something different" to compete and because its research said cardholders were "tired of gimmicks" such as points schemes. But competitors said the danger was the cards attracted too many people who pay paid their bill in full.

A&L said it hoped to make money through attracting people who borrow on their cards and also because it expected higher than average usage.

Although users will not pay an annual fee and many will pay no interest, card-issuers still earn commissions from shops and other merchants who take cards. This commission is worth 1.7 per cent of the value of a transaction, of which the issuer normally gets 1 per cent and the bank administering the payment of vouchers gets 0.7 per cent. A&L is one of these administrators, called merchant acquirers.

The past year has seen increasing competition and fragmentation of the credit card market, with an estimated 120 new cards launched.