Johannesburg - South Africa's gold credit cardholders pay on average 38% more in annual card fees, yet the benefits they receive are "insignificant" in comparison to the premium paid.
This is according to research undertaken by market newcomer Virgin Money, in which the annual card fees and interest rates on both positive and negatives balances on credit cards offered by the big four banks, Woolworths and Discovery were compared.
Virgin Money found that gold credit card holders are collectively topping up their banks' profits by R104m every year, under the false impression that they are paying for a better "deal" than entry-level blue or silver credit card holders.
'The gold card rip-off'
Virgin Money's research found that the average annual fee for an entry-level credit card is R137.28, while for a gold credit card it is R189.44.
Multiplying the difference of R52.16 (a 38% jump) by two million - which is the estimated number of gold credit cards in circulation in South Africa - Virgin Money estimates that banks are making an extra R104m, and labels the amount the "gold card rip-off".
"While the banks' glossy marketing materials try to convince consumers that gold credit cards offer better interest rates on both debit and credit balances, the research illustrates that the differences for both rates are negligible," says Virgin Money.
On a positive balance, the average rate for entry-level cards is 2.58% and on gold cards it is 2.63% - an indiscernible difference of 0.05%. The average rate for a negative balance on an entry-level card is 20.32% and on a gold card it is 19.94% - a difference of 0,38%.
"To put this into perspective, a gold card holder with R5 000 owing on his or her credit card ends up paying R1.58 less in interest a month than an entry-level card holder, and would earn 21c more in interest a month if they had a R5 000 positive balance!"
'Fees not justifiable'
Given that for a 38% increase in fees, gold cardholders get only a 0.05 percentage point increase in interest on positive balances (from 2.58% on entry-level offerings to 2.63% on gold offerings) and a 0.38 percentage point reduction in rates on negative balances (from 20.32% to 19.94%), Virgin says annual credit card fees are no longer justifiable.
"It is ridiculous that credit card providers are still charging customers just to carry around their particular brand of credit card, and even more so if it is a gold card."
The Virgin Money Credit Card does not charge annual fees, loyalty fees and does not charge for the first three months for any purchases (although a variable interest rate thereafter of 15.75% kicks in thereafter).
Keen to challenge the perception that 'coloured' credit cards are a fashionable status symbol, Gavin Muller, the credit product director at Virgin Money says: "At the end of the day, they're still made of plastic and the 'benefits' of owning these multi-coloured cards don't seem to glitter as brightly as their cards do.
"And trust us, putting a gold coat of paint on your credit card doesn't cost the banks R52,16 more than blue or silver."
Unfair comparisons
The banks Fin24 spoke to found the comparisons to be incomplete and one-sided as they did not take all the benefits offered by the cards into account.
Graeme Holmes, the head of consumer card services at Nedbank, (whose annual fee on the gold card is R145 a month, or R35 more than its entry offering, labelled Classic Credit Card), says gold customers enjoy better benefits, such as a higher minimum limit (of R15 000 on the gold card), higher floor limits at the shops (which means fewer transactions will go on-line to the bank for authorisation), and better travel insurance benefits.
"This feature is available free of charge to all Nedbank Visa or Mastercard credit cardholders under the age of 75 when they purchase travel tickets on their Nedbank Card," says Holmes. Nedbank says it will be introducing free supplementary cards for gold cardholders.
Holmes points out that Virgin did not take the Pick 'n Pay Go Banking credit card (which Nedbank manages for Pick 'n Pay) into account; there is no annual fee charged on that card.
'Totally transparent'
Absa spokesperson Errol Smith says the bank "has always been transparent in its pricing and the customer knows what he or she is paying for."
Notably, Absa provides the back office for the Virgin Money credit card.
Standard Bank and First National Bank could not be reached for comment.