'We are open for business' - Nedbank to offer credit cards to low-income earners

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Nedbank has reduced the minimum income required for people to get its credit cards to R 5000. It wants to grow its credit card market share to 16%.
Nedbank has reduced the minimum income required for people to get its credit cards to R 5000. It wants to grow its credit card market share to 16%.
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  • Nedbank has reduced the minimum income required for people to get its credit cards.
  • The bank said it is "open for business and open to growing" its lending book again.
  • Nedbank hopes that its low requirements and R40 monthly fee will attract low-income earners from its competitors.

Nedbank is loosening its lending taps in hopes that it can bring more consumers who had to rely on mashonisas (loan sharks) into the safety net of the formal credit market.

On Monday, the bank announced that it has reduced the minimum income requirement for consumers to get a credit card to R5 000.

The bank said the move was to boost financial inclusion in SA, which is critical in helping the economy recover from the Covid-19 knocks. 

Its announcement also comes when credit bureaus report that consumers are increasingly turning to credit for consumption to supplement their incomes as their households' financial health has not yet recovered in line with their expectations.

"What we are trying to do is to access the customer pool that would have typically been excluded in credit extension. And they would have typically gone for the far more expensive, short-term loans, as opposed to a transactional-type product like a credit card," said Nedbank's head of trading products and solutions, Mpho Sadiki.

Although Sadiki didn't have the exact percentage of Nedbank's clients that will now be able to access a credit card for the first time, he said pitching the minimum income requirement at R5 000 will help the majority of the working population. It will help them avoid going to unregulated informal lenders operating in the country who sometimes charge as much as 50% per loan.

Market share play

While Nedbank is only reducing its minimum income requirement for credit card applications now, Absa and Capitec have been giving credit cards to people earning R5 000 a month. The minimum salary requirement for a credit card application is R5 000 and R10 000 for self-employed clients at Capitec. Absa's gold credit card requires a minimum income of R4 000.

Statistics from Genesis Financial News & Data show that Nedbank held a 12% credit card market share in July in terms of its total credit card debtors book.

This was considerably behind the other big four peers FirstRand, Absa, Standard Bank, who held around 25% to 26% market share.

"We've always played a significant role in the card-issuing market. But this strategy of growing the credit card portfolio within this pocket of customers is one of many that we'll utilise to really grow market share," said Sadiki.

Sadiki said Nedbank is targeting to grow its credit card market share to above 16% over the next cycle.

And evidently, the bank has been lending more than this year.

While at the group level, Nedbank sold fewer loans in the first half of 2021 than the first six months of 2020, that was all attributable to the bank's corporate and investment banking division. Nedbank Retail and Business Banking grew gross loans and advances by 7% in the first half of 2021.

Open for business

Sadiki said Nedbank has "huge" ambitions to grow its lending book. The bank was encouraged by projections showing that household credit extension will grow by around 3% this year and by roughly 5% in the three-year cycle after that. That was aided by better bad debt experience than what banks braced themselves for in 2020 and the "cautious positive outlook" that the industry as a whole has adopted in terms of consumer credit performance.

"It's always a tough question to answer when the right time is to grow," said Sadiki.

He said for Nedbank, the decision was driven by data, growth in transactional volumes it is seeing from its clients and other banks' customers when they swipe at point-of-sale devices the bank has across the country.

"We're getting a sense that customers are at a better and healthier position than they were a few months back. All the right indicators say it could be the right time, but we are obviously managing that growth. You don't want to grow too fast," he added.

Sadiki said while Nedbank saw an opportunity to expand its credit market to lower-income earners, affordability tests will play a huge role in determining how successful its venture into that space will be.

"Obviously, there is always an object on the one hand and the reality on the other. The reality is, as a responsible credit provider, you're not going to overextend consumers … It's a balance. But we are projecting and seeing that credit extension is growing," he said.

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