Jen and I have a plan to discuss one Barclaycard Ring feature per month through this blog. So far in 2013 we’ve discussed “always on grace”, a future reward scheme and the card design. We’ve received a lot of great feedback from the community and are working on a number of follow-ups from those conversations. We’ll give you update soon with next steps. So, for April, we wanted to look at our options when it comes to fees.
Getting charged a fee can be an emotional moment for people. Even if we understand the rationale for the fee, we still don’t like paying it. I occasionally can be a sloppy payer and will get charged late fees from time to time. It’s painful because it’s something that could have been avoided. We track customer complaints at Barclaycard and fees are the biggest single complaint category generating almost 16% of our US complaints in 2012.
Keeping in mind the emotional connection with fees, when we set ours for Barclaycard Ring we had two things in mind. The first was to keep it simple. That’s why we opted not to charge the permitted Late Fee of up to $35 for customers who are late more than once in a six month period. The second thing we had to keep in mind was the ability to cover our costs. In the case of foreign transactions (as discussed in an blog about fees), for example, it costs us roughly 0.8% to process a foreign country transaction. So we set the fee at 1% to cover our costs and to keep it simple). On occasion you will see an issuer advertise a 0% Foreign Transaction Fee, but generally issuers charges 3%.
Another type of transaction that has a cost associated with it is Cash Advances(roughly $0.80 per transaction). So we set our fee at $1. As many people are keenly aware, this is a terrific deal on a credit card. Not only are Cash Advance Fees typically the greater of $5 or 3% (which can be confusing), but the APR on cash advance transactions is usually above 20%. For Barclaycard Ring, cash advances are charged the same 8% variable APR as purchases. Is anyone curious why the discrepancy between cost and fees is so great for cash advances? There is strong empirical evidence that cardholders who get cash advances are more likely to be in financial trouble and unable to pay their bills. That’s not always true, but nonetheless cash advances are priced higher by the market to cover the incremental risk of the transaction.
Ok Jared, get to the point. Why are we talking about Foreign Country fees and Cash Advance fees? Before I answer myself, let’s look at some numbers. For the 6 months from September 2012 to February of 2013 we received $0.18 per open Barclaycard Ring account in Cash Advance Fees and $0.09 in Foreign Country Fees. I believe we can keep the community financial picture whole and still provide competitive value in our fee policy by implementing the following; make the Foreign Country Fee 0% and the Cash Advance Fee $2. While doubling the Cash Advance Fee and removing the Foreign Country Fee appears to increase overall revenue (adding $0.18 while subtracting $0.09 is still a positive number) please keep in mind that more cardmembers will likely use this card for foreign transactions (therefore increasing expense) and fewer may use the card for cash advances (reducing that benefit). In addition, adding a rewards option to Barclaycard Ring will hopefully increase spending, both foreign and domestic, which may cause the relative cost of Foreign Country Fees to go even higher. Still this proposal, I feel, will a keep us close to even from a financial perspective.
On December 16, 2015 the Federal Reserve made a decision to increase the current Prime Rate by .25%. These changes will affect the current variable APR for Barclaycard Ring cardmembers and may also impact your minimum payment due. See our Prime Rate FAQs blog for additional information about these changes.