The rise and rise of plastic as cash forced to take a back seat
NEXT WEEK marks the anniversary launch of the American Express card 55 years ago in the UK but few then could have predicted today’s enormous popularity for plastic money.
The origins of such ‘money’ can be traced back to 1887 when Edward Bellamy used the term ‘credit card’ no less than 11 times in his novel, However, he was referring to a card where a citizen could spend a dividend from the Government.
Charge coins appeared from the late 19th century until the 1930s with air travel cards issued in the US in the early 1940s. Diners Club introduced the first general purpose charge card in 1950 which arrived in the UK in 1962.
The first worldwide credit card was created by Amex in 1958 and came here five years later. In 1966 Barclaycard appeared, initially as a charge card but it changed to a credit card a year later. Originally, it was a BankAmerica licensee but became a founder member of Visa in 1975.
There are several fundamental differences between the types of card. A debit card is linked to a bank account and supports its credibility for withdrawals. A charge card offers no credit and has to be repaid in full monthly and so no interest arises. A credit card allows money to be spent up to a set limit with a minimum repayment of one per cent of the balance plus that month’s interest.
Debit cards overtook cash in popularity last year owing to contactless technology. Cash payments fell by 15 per cent in 2016 whilst debit card payments reached 13.2 billion, according to the trade association, UK Finance.
Many like charge and credit cards for their statements which give information missing from almost every bank one. American Express, for instance, will not only state to whom the payment is going but give such detail for a flight reservation as the airline carrier, route, passenger name and ticket number issued.
One of the benefits traditionally of a credit card has been the legal protection given to the first named holder for redress in the event of a fault or other claim. Under the Consumer Credit Act 1975, section 75, expenses incurred of £100 and over receive such protection but there is now the Consumer Rights Act 2015 which means goods purchased in any way and found to be faulty can be rejected for up to 30 days.
To ensure charge card holders were not disadvantaged, providers offer a chargeback scheme with a refund for up to 120 days where a problem occurs.
There are three charge card issuers: Allied Irish with a Visa Gold (£75pa), Amex Green (£60pa) and Platinum (£450) and First Trust with a fee-free Gold Visa. Only Amex provides benefits such as insurance for delayed or lost luggage, flight delay or cancellation, global multi-trip annual travel, medical cover and extended warranty on household appliances.
When choosing a credit card, apart from any annual fee, consider four benefits:
Introductory rate with no interest (up to 28 months is offered by Post Office Platinum, Sainsbury’s Purchase and Tesco 28 months Clubcard)
Balance transfer with zero interest on introductory purchases for three years (Halifax 26 months, MBNA Platinum and Tesco 36 months Clubcard)
Cashback, voucher or other rewards Charges for using abroad. Watch the balance transfer terms as there will be a fee based on the amount transferred. For the three providers quoted above, the first two charge 19.9 per cent and Tesco 18.9 per cent, all on an APR basis.
Using plastic money outside the UK can incur charges, such as 2.99 per cent with BA, Leeds-based first direct, HSBC and M&S Bank. There may be additional charges, such as a non-sterling cash fee (£1.50 with Metro Bank outside the EU) or for ATM withdrawals (£3 fee plus two per cent with Bank of China UK).
Instead look for free foreign transactions which are available with Halifax Clarity, Lloyds Avios, Nationwide Select, NatWest/RBS Credit and Reward Black, Post Office Platinum, Saga, Santander (All in One, World Elite, Zero), Tandem, Virgin Money Travel and Yorkshire Bank Credit.
However, five of these cards are not free but the annual charge may bring further benefits: Lloyds Avios £24, NatWest/RBS Reward Black £84, Santander’s All in One £3 monthly and World Elite £15 monthly.
Data analyst Moneyfacts makes a detailed survey annually of all the credit cards on the market. It carries out an independent assessment and gives star awards based not on headline rates but on the most relevant features. The four and five star winners can be viewed at moneyfactsgroup.co.uk/ Ratings/MoneyfactsStarRatings.
Issuers make most of their plastic card income from interest on outstanding balances which averages 23.1 per cent. The average household credit owed has increased by nearly £100 from last year to £2,613.
Cash rebates based on expenditure are offered by four credit card providers: American Express, Santander, Smile (owned by the Co-op), Tandem. However, Santander’s World Elite and Smile’s Classic are only available to existing customers, rebating 0.5 per cent (on monthly purchases up to £3,000) and 0.25 per cent respectively.
Amex has two such cards: fee-free Cashback Everyday and Platinum Cashback at £25 annually. Both rebate five per cent on purchases in the first three months up to £100 and £125 respectively.
The former earns 0.5 per cent up to £5,000 and at one per cent above whilst the latter rebates one per cent up to £10,000 and 1.25 per cent above.
Both Santander’s All in One and Tandem Bank give 0.5 per cent back on all purchases.
Some cards do not give straight rebates but will issue a credit voucher which can be spent, such as Asda with 0.2 per cent including purchases abroad but increased to one per cent in Asda stores including petrol. This is a free card but for £3 monthly the rebate rises to two per cent for in-store purchases.
Many cards operate a points system, such as Barclaycard Freedom which gives one point per £1 spent but two points in supermarkets and for petrol. John Lewis gives one point per pound spent in store and per £2 elsewhere which are converted into a voucher at a rate of 500 points for £5.
Do not overlook plastic store cards which offer interest-free credit of 55 to 56 days: Argos, Karen Millen, New Look, Oasis and Warehouse. When first used, discounts can be 15 per cent (Oasis) or 20 per cent (Warehouse) whilst Karen Millen posts a £20 voucher with the card.