Credit cards for non-prime customers have charged high interest rates and countless fees hidden in the small print for years. It was time to change.
We worked with 118118 Money to design a product that changes banking for customers who are not eligible for prime credit cards.
Those who have had issues with credit in the past, students and young people, those who are new to the country and people who have never borrowed before can all find it really hard to get credit.
The competition only offers generic credit cards
118118 Money weren't the first to launch credit cards for those who are not served by mainstream banks.
Capital One, Newday (with their aqua, marbles and Opus brands), Vanquis and Tesco Bank already had credit cards targeted at these segments.
These credit cards would charge 34.9% interest on purchases, give or take a few percent.
They would also charge higher interest on cash withdrawals, balance transfers and money transfers, but you'd have to read deep into your legal agreements to find exactly how much.
Then there's the fees.
Balance transfer fees, Money transfer fees, late payment fees, over limit fees, foreign exchange fees, cash withdrawal fees, foreign cash withdrawal fees, fees per statement copy, load on interchange rates for foreign currency transactions, returned payment fees and tracing fees.
Just in case you thought that 4 different interest rates weren't complicated enough!
What is the problem for near-prime customers?
The issue with the way credit cards have worked for the last few decades is the lack of transparency and incredibly complicated maths.
I did maths at university, but I couldn't tell you what the monthly payment would be on a £1,400 balance at 34.9% Annual compound APR without a calculator. Can you?
Taking the calculations aside, customers often fall into the trap of credit card companies slapping them repeatedly until they get into financial trouble.
Take a customer with a £240 balance on a credit card with a £250 credit limit. at 34.9% APR.
Their monthly repayment (using my trusty Casio!) will be £8.47 assuming the credit card repays 1% of principal balance per month.
Let's say that for whatever reason, the direct debit didn't go through. The credit card company will in double time charge the customer £12 for missing the payment and then another £12 for going over their credit limit AFTER the first penalty payment was added!
Those penalty fees are 10% of the entire outstanding balance...
Next month's balance before interest is added will be £270.07 and the minimum payment the customer will have to pay to bring their account up to date is... drum roll...
The existing credit card products fundamentally don't put the customer first in the way they are designed.
What we did with 118118 Money
We completely rethought the concept of a credit card for customers in these segments.
To reinvent the credit card product, we thought the following would work pretty well. What if we did this:
- No intererest charges ever.
- No fees of any kind from the list above.
- One simple monthly subscription fee. That's it.
At first it sounds very odd, but so did Neflix and Spotify when they replaced you spending odd amounts of money on movies and music.
We worked through the way this credit card would have to work, completely rebuilt the processing systems from the ground up and launched the new credit card in April 2018.
The product was crazy simple. You pay £8 a month and there are no other charges. At all. Ever.
What was the customers' reaction?
The initial reaction from people in the target segments was amazing. The simplicity of the product and the incredibly fair way it works took them by surprise.
If customers miss a payment, they do not get a strongly worded letter with big bold red writing saying they will be charged penalty fees and the amount they have to pay back has snowballed.
Instead, the customer who missed a payment for £8 just has to log on or call 118118 Money to make a payment of... £8.
We love this new product - it was a pleasure to design, build and launch it with 118118 Money and we hope this becomes a turning point for the industry to make products great for customers.
Strategy Desk helped us build and launch a breakthrough credit card proposition. I am extremely pleased with the professionalism of the team and cannot recommend them enough.