Cards made for big spenders

Platinum costs more to have but it is really the merchants and consumers who pay, Richard Meadows reports.

PLATINUM is the favourite colour of aspiring musicians and greying middleaged ladies. But it’s just as fiercely coveted by wannabe hotshots, especially when printed on to a square of plastic and displayed in one’s wallet.

We know that platinum credit cards are a sign of success, because Big Wednesday offers one as a prize alongside a sexy Italian car and all the other glitzy goodies.

Even suave super-spy James Bond flashes his Visa in between high-speed car chases and bedding gorgeous women.

Top credit cards seem to be a status symbol of the modern age – probably because not just any schmuck off the street can get one.

“Platinum does have the prestige factor,” says Kiwibank spokesman Bruce Thompson.

Banks keep the exact criteria close to their chests, he says, but the main things you need are a decent salary and a history of paying your bills on time.

If you do get offered an upgrade, you’re probably a safe bet in your bank’s eyes.

Financial product comparison website PriceMe reckons that owning a prestige card “means you are likely to make wise financial decisions”.

That might be pushing it a bit. The obvious question that arises is whether it was wise to go platinum in the first place.

Expect to be charged a premium for the privilege of owning a premium credit card. At the big banks, the annual fee varies from $150 to $325, or anywhere from three to six times the cost of a plain-Jane card.

Interest rates tend to be a bit lower, but that’s irrelevant if you’re paying off the full balance each month.

The question is whether the benefits outweigh the costs.

Beyond looking cool in your designer calfskin wallet, prestige cards offer a range of perks. Some are hard to quantify in value, like a 24/7 concierge service for booking restaurants or hotels.

Then there’s the wine advisory service that comes with ANZ’s Platinum World Visa. Presumably it helps you chip in with the appropriate ‘‘sharp blackberry with earthy undertones’’ blather when you are enjoying your free membership with the Wine Society (also part of the package).

There is free travel insurance over certain time periods, which is usually available on gold cards too. Check the fine print on the policies though.

“I travel every year, so it’s worth a couple of hundred dollars to me,” says Thompson.

But the biggest difference between a standard and platinum card is the rewards scheme, says Consumer NZ chief executive Sue Chetwin.

A platinum card racks up points anywhere from 1.5 to three times faster than a standard card, and the points can then be redeemed for goods, cash or flights.

But you would need to be earning a lot of rewards to make up the difference in fees, Chetwin says.

Take Westpac’s Titanium Mastercard – annual fee $290. You would need to put about $38,000 on the plastic each year just to break even.

The scheme proves its worth if you are a big spender. Westpac waives the fee altogether if you rack up $30,000 over six months, as does BNZ with its Platinum Visa.

Bear in mind that the required spending is after tax, saving and investments (hopefully), mortgage or rent payments, and other expenses that can’t be funnelled through credit.

As a rough ballpark figure, you would need to be on a salary or combined income of at least $100,000 to make the Titanium card work for you.

For a more realistic household spend, there are other options that can make a prestige card worthwhile.

If you’re a frequent flyer, you’re in luck because the flightsbased rewards systems accumulated on the likes of Kiwibank’s Go Fly Platinum Mastercard or ANZ’s Platinum World Visa start to become costeffective when spending as little as $12,000 to $15,000.

Cash-back cards generally require the biggest spend, flights or airpoints the least, and product rewards somewhere in the middle. So what’s in it for the banks? Banks are usually quite keen to push higher income earners with good credit histories into premium cards, as anyone who has received a raft of upgrade offers can attest.

Why would they fall over themselves to do so only to lose out with generous reward schemes? It turns out the merchants carry the cost of platinum cards, and by extension, consumers.

Retailers are charged an interchange fee each time a customer pays with a credit card.

New Zealand’s central bank does not track the fees, but this year the Reserve Bank of Australia, which tries to keep them in check, reported that card issuers had found sneaky ways to get around previous reforms.

The main strategy was to create a raft of new premium card categories, which had higher interchange fees. Then the banks bumped customers up the ranks wherever possible to maximise the return.

The same thing happens here, more or less.

Shopkeepers wince every time they get a glimpse of metallic plastic. Standard cards incur a 0.85 per cent fee on electronic transactions, but that leaps up to 1.85 per cent for platinum.

Standard transactions are 50 per cent more expensive on platinum, too.

Naturally, prices have to be adjusted to level out the higher fees.

Unless there’s a customer surcharge on credit, that means everyone who pays with cash, eftpos or a regular credit card is subsidising the platinum-toting elite.

The moral of the story is that if you earn and spend lots of money, you might as well get generous rewards at no cost by piggybacking on everyone else.

For most people who don’t spend enough to justify it, there are always those intangible statussymbol benefits to consider.

Chetwin doubts that most people would even notice the colour of your card. “If that makes you feel better when you’re shopping – then you probably deserve it.”