The End Of Balance Transfers?

It could be the beginning of the end for ‘rate tarts’ with the announcement from American Express that they will scrap balance transfers for new customers of their Amex Nectar credit card.

This week, new Amex credit card customers will be told they will be unable to transfer any existing credit card debt.

A spokesman for the company said: “ We are focusing our efforts on attracting cardmembers who primarily want to take advantage of our reward schemes such as MoneyBack and Nectar rewards and benefit from these on an on-going basis.”

However, the company pointed out that any existing balance transfer agreements were not affected by the new policy and would be honoured.

The UK credit card market has seen card issuers introduce balance transfer fees as they try to stem losses incurred through ‘rate tarts’ who continually take advantage of 0% interest balance transfer deals and who then switch balances once these deals expire. It is estimated that ‘rate tarts’ were costing credit card issuers over £1bn a year.

Financial experts have predicted that credit card companies would soon start to phase out 0% interest balance transfer deals, as they couldn’t sustain the financial losses. It is therefore of no surprise that a card firm has taken this route. Amex is the first card company to scrap 0% interest rate balance transfers for new customers.

Credit cards that offer low interest rates for the lifetime of a balance transfers are increasingly growing in popularity and Amex have now shunned 0% balance transfer deals in favour deals that offer a low life-of-balance transfer rate for a balance transfer until the debt is paid off.

Amex Red and Amex Nectar cards now offer interest rates for balance transfers of 5.9%.

Moneysupermarket.com’s Robert Keenly said: “ Although this is not the end of balance transfer per se for Amex, it does prove that some providers recruiting customers by way of an attractive balance transfer rate is not always a viable business proposition.

“ Amex’s life-of-balance transfer strategy appears to have failed, mainly because Amex has been unable to compete with the bigger players in the market such as MBNA and Capital One, who are more willing and able to revert to its traditional, more successful strategy of focusing on ‘spenders’ rather than ‘borrowers’ and generating revenues from merchant fees.”

Alisdair Milton
15th June 2006