Yesterday's BNZ HomeAdvantage credit card launch is a significant new product offering in New Zealand.
While the bank's claim of it 'changing the game' may be promotion hyperbole, it does signal an important new raising of the stakes for New Zealand banks in the important home loan market.
BNZ is in the position of being one of the big retail banks with the least exposure to residential mortgages. As such, it may be in a better position to try some new aggressive approaches that have a lesser risk of eroding margin in their existing client base.
What they have done is offer residential mortgage prospects a Mastercard credit card at the variable home loan rate, for the life of the mortgage - in BNZ's case that could be up to 30 years.
It is something that has never been done before in New Zealand, never been done before by any Mastercard bank, and is probably a world first.
Banks have a chronic problem with their mortgage products - mortgages have become commoditised to such an extent that clients switch easily between offers. High and rising satisfaction levels across all banks means these is now no practical penalty to make a switch. In fact every bank now makes it very easy to do so, managing the process for their clients.
The challenge is now how to de-commodify, how to build a unique offer - preferably without sacrificing margin.
BNZ's innovation is to bundle the credit card with the home loan.
Credit cards - especially now they include the new PayWave/PayPass capabilities - offer the opportunity because everyone has one, everyone 'knows' they can be an expensive convenience, and they are among the few products that might motivate a customer to switch a home loan if the offer is good enough.
BNZ claim they have surveyed clients. "Our customers told us that we won’t win them with a hot rate and some treats when they sign up anymore. They want support throughout the life of their mortgage," said Andy Symons, the BNZ director of retail.
"We also want to give our customers something that nobody else can," said Symons.
The goal is customer stickyness - and the short-term cost may be some margin erosion for existing clients' credit card business.
BNZ expect a competitive response, but feel they have a good head start over rivals as it will take others some time to catch up, because there is a lot of back-end capability to put in place.
They also confirm there are more features to come - probably next year - but won't be drawn on what they are. It is however worth noting that they are offering their "Standard variable mortgage rate" of 5.99% rather than their flagship "Total Money" variable rate of 5.74%.
The bank confirmed that customers signed up to their "Total Money" products remain very sticky, not only to BNZ but to the discounted variable rate. In the past 18 months when fixed rates have become more attractive, few "Total Money" clients have shifted from the product, whereas clients on the standard BNZ variable rate have shown normal migration towards fixed-rate options.
In the meantime, they are offering double Fly Buy points on the new card until the end of April 2014, plus triple Fly Buys for some selected offers. Fly Buys linked to a credit card and to home loan payments are unique to BNZ, due to the ownership investment BNZ has in the Fly Buys program*. It is a powerful incentive for many customers. Fly Buys are now also linked to the BNZ's new KiwiSaver product.
The reason it is a Mastercard product, rather than Visa, is because BNZ tendered their 'low rate card business' and Mastercard won that tender. This means they have stopped offering their BNZ Visa Lite product, although legacy clients will continue to be supported.
These new BNZ HomeAdvantage cards have their own separate credit limits (separate from the home loan itself). A bank spokesperson said they would be on the lookout for clients trying to load up their credit cards to come up with a housing deposit. "We would be concerned if we found that happeneing. We are committed to adhereing to the spirit as well as the letter of the new RBNZ regulations and are playing these issues with a straight bat," he said.
(Updated with additional comment from BNZ, and detail on Total Money.)
*Fly Buys is New Zealand’s largest loyalty program. It is administered by Loyalty New Zealand Limited, which is jointly owned by BNZ, Foodstuffs, IAG New Zealand and Z Energy.