Money Insider: Is it the end for 0% credit card balance transfers?

Card providers are coming to terms with a reduction in interchange revenue

Andrew Hagger
Friday 01 May 2015 18:38

This week Nationwide Building Society announced three positive changes for its credit card customers, making its terms and conditions less costly for some. I wonder what the wider implications may be if other card providers decide to follow its lead?

The changes are: to scrap the £12 over-limit fee; to not immediately terminate a 0 per cent promotional deal on the first occasion a payment is missed; and to no longer charge interest on purchases where there is a 0 per cent transferred balance as long as the purchase element is repaid in full.

Although they are a much needed boost for card customers, these changes will all hit profitability, with Nationwide estimating a £2.6m annual reduction for itself and £57.5m a year if they were adopted by the credit card industry as a whole. It has certainly thrown down a big challenge to the rest of the market, but can other players afford to follow suit?

Card providers are only just coming to terms with a reduction in interchange revenue, with some rewards programmes watered down or scrapped, so the impact of losing additional income could spell the end for long-term 0 per cent balance transfers.

Currently, if a card provider offers a 0 per cent balance transfer deal it relies on a percentage of customers to miss a payment and thus end the deal ahead of schedule or to purchase on the 0 per cent deal and incur interest charges – without these sources of income the only definite revenue is the initial balance transfer fee of approximately 2.70 per cent to 3 per cent, but is this alone sufficient to be able to offer zero per cent interest for nigh on 3 years?

Nationwide currently offers 0 per cent balance transfers for up to 26 months, well short of the 36 months from Barclaycard and Virgin Money and 35-month offers from Tesco Bank, Halifax, MBNA and Lloyds Bank.

Time will tell if these moves will be adopted across the industry, but the bigger question will be at what cost?

The move will be welcomed by the Financial Conduct Authority, which is currently undertaking a study of the sector; but it's also a change that could potentially change the landscape for good.

Limited access to financial advice for less wealthy investors

The introduction of the Retail Distribution Review (RDR) may have made it easier to see how financial advisers are paid, but the downside is that some smaller investors are now considered no longer commercially viable and are being frozen out.

A report from the online investment platform found that a third of financial advisers have introduced a minimum investment portfolio size since the new regulations were introduced.

With around a quarter of advisers only offering services to people with an investment pot of at least £30,000, this leaves many people with smaller savings and investment balances with very limited options when it comes to receiving independent face to face advice.

Stuart Dyer of Rplan, said: "Our research reveals that 56 per cent of advisers are planning to stop servicing some existing client accounts over the next 12 months. Since the introduction of RDR, we have seen a significant increase in the number of hits to our website… We offer tools to help investors select investments that reflect their risk profile [which] appeals to people as they find it more difficult to secure professional advice."

Andrew Hagger is an independent personal finance analyst from

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