The Bottom Line / An AlphaCard in shining armor
With Bank Hapoalim's Isracard credit card company announcing that from April 1, it would be introducing new operational charges of NIS 5.50 a month for each cardholder, an era in credit cards came to an end yesterday.
With Bank Hapoalim's Isracard credit card company announcing that from April 1, it would be introducing new operational charges of NIS 5.50 a month for each cardholder, an era in credit cards came to an end yesterday. One could even say that the age of competition in the field, at least from the consumer's point of view, came to a close.
The sum may sound petty, but in annual terms, it amounts to NIS 70 million for the credit card company. Isracard has, therefore, climbed on to the bandwagon, following the recent decision by Visa CAL and Visa LeumiCard to introduce monthly "handling charges" of NIS 5.75 and NIS 5.85, respectively. The three companies are expected to net an extra NIS 170 million as a result.
In addition, the companies announced their intention to levy fees on deferred payments through the credit card, thereby bumping up their extra revenues to over NIS 200 million. Handling-shmandling charges, whatever, they are simply a return to the membership fees that the companies used to charge. What happened to them?
The credit card companies used to charge between NIS 50 and NIS 400 in membership fees according to the type of card. When AlphaCard entered the market in 1997, it issued cards free of membership dues to anyone using the card more than six times a month. The same AlphaCard promised not to charge membership dues "for a lifetime." Indeed, the company kept its word and never charged such fees for its entire lifetime - the company was liquidated two years ago.
As AlphaCard canceled membership charges, the others followed suit, and the credit card issuers lost out on NIS 500 million a year. Their revenues also shrunk from the reduction granted to businesses on the commissions that they have to pay on each transaction. As a result, a market that once brought in vast profits, building up the banks' fat, saw its profits wiped out.
The introduction of new charges is not technically collusion, that would be prohibited by the antitrust authority, but it is indeed some type of corporate coordination. You may not be able to open an investigation in the authority, as each credit card company took the trouble to announce their (very slightly) different charges at different times, but it still leaves room for questions:
How comes all three companies are levying such large new charges? Why doesn't one company try to steal more customers from the others, by not introducing a new fee? And if this is just a reintroduction of the membership dues, why do the companies still collect such fees from customers that haven't carried out the minimum number of transactions?
There is no doubt that the banks and the credit card companies have lost revenue in recent years, and it is reasonable that they should want to make up for this somehow. But the method they have chosen points to a sector that still splits the market between the players, with no real competition, and no attempt to lure new customers.
Even more disappointingly, there is no new player on the horizon that is likely to come and jolt the market such as AlphaCard did.