The Rise of Supermarket Credit Cards Tuesday, December 23, 2008

Recent years have seen a big increase in competition within the Australian credit card industry, a sector that only five to ten years ago was heavily dominated by the big four banks. Some of these new issues have neen local non-bank issuers while others have been overseas banks looking for a slice of the profitable Australian banking market. A new sector that has emerged from this is the supermarket credit card with Coles group offering a card and more recently the Woolworths credit card.

Along with department stores and supermarkets, credit cards in Australia are now issued by online retailers and telecomms companies. Major retailers in Australia have observed that more and more customers are paying for purchases with their cards, which means they have to pay more in merchant servicing fees. Having their own card helps them become more cost-efficient.

As a result it is no great shock to see the two largest grocery store groups in Australia launching their own cards.

Woolworths credit card

This combination credit and store card is formally called the Woolworths Everyday Money Credit Card. It is a store card because you get extra discounts and privileges when you use it for purchases during special promotions in Woolworth stores. In addition, it is a regular credit card, issued by HSBC Bank Australia, which means you can use it at any store that accepts MasterCard.

Two features make the Woolworths credit card stand out among other store cards.

- Cardholders may use the supermarket's checkout to verify their available credit balance and make payments to their account.

- The credit card features an automatic payment facility (called "epump") for petrol purchases. Pumps at petrol stations have a card reader that picks up signals from a small transmitter built in the card. The transaction is completed automatically, including applicable discounts on the purchase.

Standard interest rate on purchases is 18.99% (starting 1 Feb 2009), with a 55-day interest-free period. Cash advances, however, will attract 21.99% interest, and balances transfers are at 5.99%. An annual fee of $49 is currently waived for the first year you hold the card.

The Woolworths Everyday Money reward program gives 1 point per dollar spent in other stores, 2 points for spending in Woolworths stores, and 3 points for Woolworths Select products.

However, some cardholders may find one policy restrictive. Rewards are delivered through shopping vouchers which can be spent only at stores in the Woolworths group. Also, the vouchers are automatically issued every 4 months with an expiry of 3 months from issue date. Consumers may find that too limiting — and could forget the expiry dates.

Coles Myer Source Card

The Coles Group includes Coles, Target and Kmart stores under its umbrella. Holders of a Coles Myer Source Card can earn special discounts and offers at these stores as well as spending in any other Mastercard accepting retailer.

One special benefit from this credit card is the chance to save up to 8 cents per litre on your petrol purchases. You get a 4 cent/litre voucher when you spend at least $30 on your card anywhere, plus another 4 cent/litre voucher for minimum $30 spent at certain outlets (Coles, BI-LO, Liquorland). The fuel saver vouchers may be redeemed at Coles Express petrol stations. Note well that the vouchers are valid for only a limited time.

The Coles Myer Source Card (also called Coles Group Source Card) does not charge any annual fee and offer a 62-day interest-free period on purchases. If you have a FlyBuys membership card, you may also earn FlyBuy points on purchases at Coles Group stores.

You can also participate in special promotions with up to 48 months of interest-free purchases on particular items at their stores. But you must be careful to pay your monthly bill in full and on time; otherwise all these benefits will be for nought.

The standard interest rate is 20.25%, which is quite high. Failure to pay in full will trigger that rate and your balance will quickly build up. You wouldn't want that to happen. For the banks, it's all about benchmark lending.