At its recent half year results presentation, CBA's CEO Ralph Norris stated that the bank had lost at least 1% of its leading credit card market share because it had not followed its rivals in offering a low-rate credit card or a 0% balance transfer. Mr Norris promised that this would soon be rectified.
True to his word, on March 1, 2006, CBA launched the 'Yellow Low Rate Credit Card'. The new card offers holders a 5.99% balance transfer rate for the first five months (from non-CBA accounts) and an ongoing interest rate of 10.99% for withdrawals, purchases and balance transfers after the five month period. The card also carries an annual fee of A$48.
CBA's retail banking chief Hugh Hartley is quoted as saying: "We think that, for customers, it (the 0% balance transfer) is ultimately unsustainable. It is much better to have a card that has a sustainable interest rate, rather than one that is going to rise after a short period."
However, despite this contention, CBA's new card also has an unsustainable rate, given that the discounted rate lasts just five months. Meanwhile the Yellow card's overall package remains inferior to other low-rate cards. Competitors offer a 0% balance transfer rate and then revert to an average 12-14% interest rate with no annual fee, so consumers are likely to continue to be attracted to rival cards above CBA's offering.
The motivations for its introduction also appear flawed. Customer retention is unlikely because the balance transfer feature is unavailable to CBA customers and customer acquisition is also doubtful with other cards offering superior features. In light of the lack of innovation and market leading characteristics, this new venture seems to offer little of real benefit to Australia's plastic card users.