Australian Credit Cards:

The Rise and Fall

Aussies have heaps of plastic in their wallets. Millions of debit cards, millions of credit cards (6.7 million Visa, 3.5 million Mastercard, 1 million Bankcard, 700,000 Amex and 300,000 Diners Club, as of early 1998) and many of them can be used as either.

Plastic money used to be simpler, but it keeps getting more complex. The breadth of fees being charged increases almost daily, and the rewards that were once increasing are now decreasing too. Here's a historical perspective on how things used to be.

In the Beginning
Letting Incompetence work for You
Putting it Off Until the Last Moment
Making Purchases Overseas
Getting Cash Overseas
Reward Schemes

In the Beginning

Until the mid 90's, there were no fees on Aussie credit cards. Yearly fees were only allowed to be charged on charge cards, such as Amex, which had no interest fees and had to be paid off in full within a certain period after the statement date. Credit cards were allowed to charge interest only so long as they didn't charge periodical fees as well. Those rules are now gone, and a plethora of cards offer a range of different ways for the banks to make money out of us, and for us to make money out of them.

Note that almost all the methods for us, the consumers, to make money out of credit cards are being crippled by conditions and fees! It's getting harder and harder to find good credit cards, and the banks are becoming more and more devious in applying, and hiding, charges.

Letting Incompetence work for You

One benefit of credit cards many years ago was the lack of electronic processing, which led to delays in processing. Sometimes, the whole system become overloaded, leading, for example, to massive delays around Xmas. Some companies mislaid their copies of the slips, sometimes finding them again at the end of the financial year. Others never processed them at all. These days, that's very rare, but you might still strike it lucky. The more you put on plastic, the better your chances.

The downside is that errors can occur against you, and you have to be watchful to make sure that you notice any errors and can get them fixed. ANZ Bank introduced a $10 fee for checking into errors, which they claim they won't charge if the cardholder is correct. This leaves the possibility of having to chase the $10 as well as the original error through months of paperwork.

Bank incompetence could work for you too. Before the recent fee-festa, you had more options in gaining action from your bank. I once requested a credit limit increase on my State Bank of Victoria Visa. I had all my details and proof of earnings with me when I filled in the forms at the branch, but they said they didn't need to see them. About 5 weeks later, after I was back from the trip for which I wanted the increase, I received a tiny piece of paper requesting that I provide proof of earnings, etc. I expressed my response by putting things such as my work's departmental lunch on my card and blowing it out to about 50% over my limit within a couple of weeks.

That certainly got their attention. Someone from the SBV even phoned me at work. I explained what I thought of their handling of my increase request. They asked what other cards I had and what limits I had on them. (... though, of course, they knew the former from the CRAA listing.) They pointed out that I had lots of credit available on other cards and I agreed, noting that I could simply use one of those instead. They doubled my credit limit on the spot without any further paperwork.

These days, such a technique would run you foul of various nasty over-limit fees.

Putting it Off Until the Last Moment

It's always been simple. Never pay interest on purchases. Never let a statement go by without paying it in full by the due date. These days, that's even easier than it once was, with automatic debit from your bank account on the due date.

If you don't pay by the due date, the bank will charge you interest for the whole period of the charges. It used to be easy to avoid this. All you had to do was have a separate card (preferably with a low interest rate, of course) from which to pay the debt with a cash advance. That way, the interest would only be charged from the due date onwards, not backdated. Banks have introduced cash advance fees which make this uneconomic now.

Back when interest rates were high and my credit limits were fairly low, I used to regularly use two cards, one with a mid-month due date and one with an end-of-month due date, and put purchases on whichever one would give me the longest period before having to make the payment. With the incentive schemes in co-branded cards and low interest rates, I don't believe that's worthwhile any more.

Of course, for paying as late as possible to matter, your money needs to be earning interest every day. If you are not getting a decent rate of interest on your money, calculated daily, such as in a cash management trust account, then there are probably more important things for you to think about before optimising the performance of your credit cards!

Making Purchases Overseas

One really good way to make money on credit cards in the past was to use them as a quick and easy method of buying goods overseas. Purchases made overseas are generally put through at a better exchange rate than you would get by using cash or travellers' cheques. However, the banks are now cashing in on the fact that so many people now use credit cards overseas!

In the late 90's, National and Commonwealth led the charge (pardon the pun) into foreign exchange fees. ANZ and Westpac were much better value for a while. American Express not only charged 1.5% when the banks charged 0-1%, but also used a worse exchange rate, while failing to inform you on your statement that a fee had been charged at all!

What, you may be wondering, does this all mean in reality. Well, here is an example. When I visited New Zealand in October, 1998, I converted money in various ways. Below is a comparison of the cost of using each type of transaction, compared to the median bid price on the international money markets on the day the transaction is recorded on my statement in the case of credit cards, or the day of the actual transaction in the case of other transaction types. I've checked more recent US transactions, which just shows it's an ever-moving target. The page with the excellent historical currency converter is here.

Amount lost on 1998 NZD transactions versus interbank market rates:

Payment Method	Loss
Westpac Visa	0.81%
Travellers cheques	1.41%
ANZ Visa	1.45%
Amex	2.80%
Cash	4.02%

(Back in those days, Westpac had no currency conversion fee. ANZ's official fee was 0.5% and Amex's was 1.0%.)

Amount lost on 2005 USD transactions versus interbank market rates:

Payment Method	Loss
Amex	2.11%
ANZ Visa	2.58%
Westpac Visa	2.80%

Getting Cash Overseas

The best savings that could be made by using credit cards in the past was for getting overseas currency. Even in the times when you could get travellers cheques free of commission charges relatively easily, the conversion rates were worse than for credit cards. The conversion rates for cash are usually worse still, and foreign currency exchange booths often charge ludicrous fees to change cash. Credit cards usually offer better exchange rates. Then the banks started charging cash advance fees.

The easy solution to the problem of obtaining money overseas in foreign currencies at a good exchange rate without paying any fees was to deposit money into a credit card account prior to travel and withdraw the money by way of a cash advance overseas. Obviously, this would not be the same card that you plan to use for purchases while overseas. No credit cards in Australia before mid 1996 had any fees that would affect this, but almost all of them do now, some at quite high rates. Even if the cash advance fee doesn't apply, the foreign transaction fee will.

Note that it may still be cheaper to cop the fee on a credit card than to cop the exchange rate and fees on travellers' cheques, and exchanging actual cash for cash in a foreign currency is definitely a way of getting a poor rate.

Reward Schemes

While our banks are following the US trend towards exorbitant fees, they are also following the trend to cards that give some sort of rebate. ANZ used to have a MasterCard which gave really amazing rebates, but they gave it up. It was yet another excellent idea introduced by ANZ, marketed atrociously, implemented appallingly, and later scrapped.

When we had 2 airlines with frequent flyer schemes, competition was quite fierce. Air New Zealand gutted Ansett and left it to die and the Reserve Bank decided, stupidly and against the public interest, to interfere with the banks by limiting their interchange fees. While the theory was that this was for our benefit, to believe that was short-sighted folly by clueless public servants. When the banks were forced to charge less to merchants, they just directly charged customers more and now provide us with much fewer and less valuable benefits. Meanwhile, merchants have not only not reduced prices to compensate for the reduced fees, but they are allowed to charge credit card surcharges so that they can add even more to their bottom line at our expense.

If shopping around for a card, check which one gives you the biggest effective return on the money you spend, and go with that. Note that this gets complex. For example, the companion Amex to the Westpac Global Rewards Visa and the ANZ Frequent Flyer Visa currently give the same rebate (1 frequent flyer point per dollar). However, the ANZ card drops to .5 pt/$ at 1500 pts in a month, while it gives bonus points at more outlets. The gold version of the Westpac card has overseas travel insurance, while the gold version of the ANZ card does not.

If you want to check the basics on the different cards, have a look at this table.

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