How we use credit cards

The announcement by TymeBank that it is expanding its product offering by launching a credit card ought to raise the question whether its clients really need a credit card.

Actually – does anybody need a credit card any more, except to rent a car?

TymeBank is launching its credit card quite quickly; the bank only started in 2015, and is offering a credit card after six years in operation.

Capitec Bank followed a more cautious approach. It started offering credit cards only in 2016, some 15 years after the birth of the bank in 2001.

Another newcomer, Bank Zero – which started in 2018 – said it is not considering a credit card at all at this stage. Nor is Bank Zero offering credit, saying that there is “enough credit available out there”.

African Bank announced its credit card in 2020, some four years after the relaunch of the bank. However, one should bear in mind that African Bank has had decades of experience in the credit market, and learned a lot of very hard lessons in the process.

The other young bank in SA, Discovery Bank, has been offering a credit card from the very start of its existence, but then all its banking products were backed by FNB up until it morphed into an independent bank in 2019.

TymeBank says it launched a credit card in response to ongoing customer demand.

“This comes as the bank continues to expand its offering with products that cater to different financial needs and life stages,” says TymeBank CEO Tauriq Keraan.

“The launch of the TymeBank CreditCard is a significant step in our growth phase and is in line with our intent to diversify our customer profile by attracting more customers from the middle and upper middle income groups.”

TymeBank published the results of a consumer survey into the use of credit cards at the same time it announced the launch of its credit card. The survey was done among SA consumers to find out what people do with our cards.

The results revealed a number of interesting trends among different demographic groups.

Lots of cards

The TymeBank research found that some 6.9 million people in SA have credit cards, but the use of credit cards varies considerably depending on age, income and life stage.

“What is clear from the research is that 74% of South Africans are using their cards to shop online more than ever before, triggered in large part due to the pandemic,” according to the survey.

“Age, rather than income, has the largest influence on purchasing and repayment behaviour,” it adds.

The overwhelming majority (71%) of respondents older than 50 years noted that they use credit cards for purely for convenience.

Most – some 42% – indicated that they pay towards the debt on their cards every month, regardless of their financial circumstances. The researchers came to the conclusion that this “prudent behaviour points to the benefit of experience and potentially some hard-won lessons about the importance of paying off credit card debt as soon as possible”.

On how much people pay towards credit card debt, only 22% of cardholders pay off the full balance on their cards every month. One can argue that these users can get by with a debit card, as debit cards do basically the same job and use the same transactional infrastructure.

Just under a third (31%) of respondents pay as much as they can each month, while 30% pay only the minimum required. About 16% of respondents say they pay the same amount off every month, regardless of the balance.

“Earning more doesn’t necessarily influence repayment behaviour,” according to the survey, noting that “only 29% of those with a household income of more than R30 000 pay off their cards in full every month”.

What people buy

According to the survey, 63% of respondents use credit cards mostly for big purchases like appliances, furniture and renovations, while 46% pay for special occasions such as weddings, birthdays and funerals.

Nearly half (41% of respondents) say they use their cards to pay for holidays and to travel, although this is far more likely among those earning over R30 000 per month and people older than 50.

Just under a quarter of respondents (24%) use their cards for most of their purchases, from big ticket items to clothing and treats like dinner and drinks.

The survey made a point of looking at how so-called Generation Z (those born between 1997 and 2012) customers use credit cards. Card ownership in the age category of 18 to 24 years is “surprisingly high at 46%”, with the popularity of online shopping among the younger generation a likely contributing factor, say the researchers.

The overwhelming majority (70%) indicate they are more likely to use their card to manage their money and monthly transactions and less likely to rely on it to access credit (21%).

This compares favourably with the overall sample, with 32% claiming they need access to the credit. When it comes to purchases, they tend to pay for entertainment using their cards (37%), whereas 81% buy clothing above all else.

Which card

When choosing a credit card, the majority of people favoured those with low fees.

The survey found that fees are the most important feature for 77% of the sample, while 61% look for a good loyalty programme. Competitive interest rates ranked high for 60% of respondents, followed by additional benefits at 56%.

Interestingly, a credit card’s design would be an influencing factor for 16% of cardholders and presumably potential applicants, while 6% said they liked the status that comes with having a credit card.

TymeBank adds that there are definite benefits to having a credit card, provided it is used responsibly.

“It is a secure, convenient method of payment that can add value to your budget and lifestyle,” says Keraan.

“Cardholders can bolster their credit scores if they make payments on time and in full, which may even help with securing lower interest rates on other forms of credit.”

Keraan says TymeBank’s credit card has been in the pipeline for some time, but the bank considered the timing carefully, particularly given the challenging consumer environment.

Read: Bank Zero vs TymeBank vs African Bank – fees compared

TymeBank has committed to ensuring that cardholders are armed with all the information they need to get the best out of a credit card and managing debt levels.

The bank points out that offering a credit card is not its first stab at the credit market. It has been offering a ‘buy now, pay later’ facility that enables customers to buy something by paying half of the purchase price upfront and the balance over 30 or 60 days, at zero interest and with no fees.

Listen to Nompu Siziba’s interview with Carmen Williams of TransUnion (or read the transcript here):