STAR RATINGS REPORT. Business credit cards

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1 2014 STAR RATINGS REPORT Business credit cards

2 August 2014 BUSINESS CREDIT CARDS IN THIS REPORT We research and rate 13 business credit cards from seven providers across New Zealand, to see which offers businesses outstanding value. Enterprising types Small business is big business in New Zealand. According to the Ministry of Business, Innovation and Employment, 97% of enterprises in this country are small businesses, and Statistics New Zealand 2014 data shows that 26% of New Zealand s gross domestic product is estimated to be contributed by smaller enterprises, i.e. those with fewer than 20 employees. When it comes to finance, many small businesses choose credit cards to facilitate more buying power, so CANSTAR s Business Credit Card Star Ratings report aims to sort out those products offering outstanding value to help business owners make informed financial decisions. In order to accurately assess the offerings, the CANSTAR research methodology reflects two different spending and credit card usage styles the Revolver and the Transactor. What is a Revolver? Meet Amy. She runs a small business and her way of managing her finances involves revolving a debt from month to month and paying interest on the balance owing. Advice for those operating a business in a similar way to Amy (Revolvers) includes: Look for cards with a low interest rate and a low annual fee Look for a card that offers instant rewards but don t overspend just to accumulate them Be aware that cards with rewards programs can come with hefty interest rates. What s a Transactor? Meet Roger. Also running his own business, Roger prefers to use his company s credit card as a regular spending tool and pays off the credit card balance in full every month or he may use a charge card instead. Thus, he is what we call a Transactor. Advice for Transactors includes: Look for a card that balances a reasonable annual fee with a good rewards program Try to find one with maximum interestfree days Don t miss payments. 1

3 Are credit cards a help or a hindrance? Due to the fact that all credit cards are not the same, you need to make sure you keep an eye on your business credit card, monitoring exactly what s being offered and how well that suits your usage habits. Date As you can see from the table, the margin between the average business credit card purchase rate and the official cash rate (OCR) has fluctuated a little over the last five years but is currently at its lowest point since 2009, mainly due to recent cash rate increases. How you can save Average business credit card purchase rate It does not, however, mean that business owners should spend wildly on plastic, as interest rates are still Official cash rate Margin August 1, % % August 1, % 3.00% 15.57% August 1, % % August 1, % % August 1, % % August 1, % % Source: significant and could well rise in the future, especially likely if the OCR continues on its upward trend. If you use the wrong type of credit card with regards to your spending profile, you could end up wasting a significant sum of money. CANSTAR analysts decided to take a look at how out-ofpocket both Revolvers and Transactors could be by using the wrong credit card product. First, the Revolver. People that are revolving debt should be looking for a low-interest rate, low-fee card so as not to incur large sums thus, rewards aren t really a priority. Using the average annual fees and interest rates from the CANSTAR database and assuming a starting balance of $5,000, we can see that there is potential for a business credit card holder to save more than $250 if they opt for a fivestar rated card over a two-star rated one. Revolving debt amount Total interest paid for a five-star card Total interest paid for a two-star card Saving $5,000 $ $ $ And a Transactor? A business owner spending $60,000 a year on his credit card has the potential to earn $505 in cash rewards with a fivestar rated product. Annual spend Potential net reward return* from a five-star product $60,000 $505 * Net reward return = reward amount with fee subtracted Charge card and credit card what s the difference? BUSINESS CREDIT CARD Charge cards offer no pre-set spending limit and no interest charges because you pay back the balance in full every month. This works well for some, particularly when extensive travel is required. Charge cards allow businesses to more easily manage their day-to-day business expenses, as well as the expenses of employees. It is important to remember, however, that because you do have to pay the balance back in full each month, charge cards might not be a good option for those business owners that sometimes have to carry a debt. CHARGE CARD 2

4 Who offers outstanding value? So, which are the business credit cards that really stand out? CANSTAR has considered the interest rates, annual fees and a range of product features (e.g. card facilities, security, rewards packages and repayment capabilities) to find those cards that are offering outstanding value for two common business credit card user profiles the Revolver, for businesses that revolve a debt from month to month (charge cards are excluded for this profile) and the Transactor, for businesses that pay off their credit card balance in full each month (and for this profile we include charge cards). Having evaluated nine credit cards in the Revolver profile, we have come up with two worthy of five-star status. In the Transactor profile, we compared 13 options (comprising credit cards and charge cards) and uncovered two cards that offer outstanding value. Our five-star winners Revolver (carries debt over each month) Bank of New Zealand Business First Visa Lite Annual fee = $60 Interest rate p.a. = 14.95% ANZ Bank New Zealand Visa Business Low Rate Annual fee = $70 Interest rate p.a. = 15.20% Transactor (pays off monthly balance in full) Bank of New Zealand GlobalPlus Business Annual fee = $100 Interest rate p.a. = 17.95% Interest-free days = up to 50 ANZ Bank New Zealand Visa Business Cash Back Annual fee = $95 Interest rate 19.95% Interest-free days = 55 3

5 BUSINESS CREDIT CARDS METHODOLOGY STAR RATINGS METHODOLOGY What are the CANSTAR Business Credit Cards New Zealand Star Ratings? CANSTAR Business Credit Cards New Zealand Star Ratings involve a sophisticated rating methodology, unique to CANSTAR, which compares business credit cards in New Zealand. CANSTAR Star Ratings provide a transparent analysis of a shortlist of business credit cards, enabling consumers to narrow their search to products that have been independently assessed and ranked. The results are reflected in a consumer-friendly five-star concept, with five stars signifying outstanding value offered by the product. Rising stars are those products that would be rated five stars but have not been in the market for six months. Rising star products will be formally rated in the next period once more historical data is available. What types of products are evaluated? Profile name Revolver Transactor Description For businesses that revolve a debt from month to month, excludes charge cards and requires six months of historical interest rates to be rated. For businesses that pay off their credit card balance in full each month. Includes charge cards. Business Credit Card Star Ratings To arrive at the total, CANSTAR applies a weight (w) against the Pricing (P) and Features (F). This weight will vary for each customer behaviour profile and will reflect the relative importance of either costs or features in determining the best business credit card. This method can be summarised as: TOTAL SCORE ( T ) = PRICING ( P ) + FEATURES SCORE ( F ) Pricing 20-80% Cost over 12 months Includes current interest and annual fee Six-month historical interest rate (Revolver profile only) Feature 20-80% Features e.g. reward schemes, security Indexed Product with the best pricing or features will receive a full 4

6 Unsecured business credit and charge cards are eligible to be included in the Business Credit Card Star Ratings. All eligible cards are assessed against two distinct business consumer behaviour profiles (Revolver and Transactor). Revolvers carry an outstanding balance on their card while Transactors pay off their outstanding balance each month. As charge cards do not encourage revolving, they were only eligible to be assessed against the Transactor profile. The star ratings consider Pricing and Features to be the two components in the card user s value equation. The contribution of each of these components to the value proposition for the Business Revolver and the Business Transactor are explained in the table below. Business Credit Card Star Ratings components Profile Pricing Features Business Revolver 80% 20% Business Transactor 20% 80% Pricing The pricing for the Revolver profile is based on a six-month average historical interest rate and the current cost of revolving $5,000. Eighty per cent of the revolve amount is based on the purchase rate, with the remaining 20% based on the cash advance rate. For the Revolver profile, the cost and the six-month historical are weighted evenly. The pricing for the Transactor profile is based on the annual cost of keeping the card active. Cards that do not charge an ongoing fee automatically receive the maximum pricing while other cards are awarded a based on their annualised fees. Features More than 100 individual features of each card are d for positive traits and awarded a Features. The factors assessed include: liability insurance, GST reporting, purchase rate and rewards program. The table below highlights the contribution of the various groups of information to the business credit/charge card Features. Features components Revolver Transactor Specific business card conditions 20% 20% Merchant acceptability 10% 5% Premium card facilities 15% 15% Card security 10% 10% General card terms 5% 10% Fees and charges 10% 5% Late payment/interest charged 5% 5% Repayment capabilities 5% 5% Rewards 20% 25% Total 100% 100% 5

7 The rewards allocated in the Transactor profile and Revolver profile is based on a product s best from the following methodology: Rewards (Select the best from the two profiles) Flight rewards Cash/voucher rewards $60,000 $120,000 $60,000 $120,000 Where companions American Express /MasterCard/Visa programs exist, the weighted is used based on 60% Visa/MasterCard and 40% American Express. Rewards Frequent flyer methodology Frequent flyer Pricing 90% Annual fee Cost of obtaining a rewards program: card fee plus frequent flyer program fee 20% for 120k 30% for 60k Flight scenarios Based on portion of three representative flight routes redeemed through two annual spending levels 80% for 120k 70% for 60k Auckland Wellington 33% Auckland Sydney 33% Auckland Los Angeles 34% Feature 10% Feature category Weight (%) Earning policies 20 Flight rewards 20 Instant rewards information 15 Travel rewards 15 Customer service information 10 Top-up policies 10 Account status information 5 Points expiration 5 Total 100 6

8 Cash/shopping voucher methodology Cash rewards Pricing 80% Net reward return 100% $60,000 $120,000 Feature 20% Feature category Weight (%) Earning policies 30 Points capping information 20 Instant rewards information 20 Bonus points partners 15 Account status information 10 Points expiration 5 Total 100 Price is determined through assessment of net reward return the dollar value of cash back less the cost of the card based on the two spending levels, $60K and $120K. Where companions American Express /MasterCard/Visa programs exist, the weighted is used based on 60% Visa/MasterCard and 40% American Express. How many products and financial institutions are analysed? In order to calculate the star ratings, CANSTAR analysed seven institutions and 13 products in New Zealand. Does CANSTAR rate all products available in the market? We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. However this process is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. How often are products reviewed for Star Ratings purposes? The Business Credit Card Star Ratings is recalculated every 12 months based on the latest rates and features offered by each institution. CANSTAR also monitors rate changes on an ongoing basis. 7

9 Does CANSTAR rate other product areas? CANSTAR researches, compares and rates the suite of banking and insurance products listed below. These star ratings use similar methodologies to guarantee quality, consistency and transparency. Results are freely available to consumers who use the star ratings as a guide to product excellence. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANSTAR website at if you would like to view the latest star ratings reports of interest. Business deposits Term deposits Credit cards Credit card rewards Home loans KiwiSaver Online banking Personal loans Savings accounts Transaction accounts COPYRIGHT & TRADEMARKS CANSTAR New Zealand Limited ( ), The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions. The word CANSTAR", the gold star in a circle logo (with or without surmounting stars), are trademarks or registered trademarks of CANSTAR Pty Ltd A.C.N Reference to third party products, services or other information by trade name, trademark or otherwise does not constitute or imply endorsement, sponsorship or recommendation of CANSTAR by the respective trademark owner. DISCLAIMER To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR New Zealand Limited ( ) FSP and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance. 8

10 Credit Card Star Ratings Report Date: July 2014 We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you REVOLVER Company Product Rate (as at 07/01/14) Free Days Annualised Fee Annual Fee ($) (as at 07/01/14) Spend to Waive Annual Fee Minimum Credit Limit ($) Maximum Rewards Program Availabe "outstanding value" ANZ Bank Visa Business Low Rate 15.20% 0 70 N/A 500 No Max Bank of New Zealand Business First Visa Lite 14.95% N/A 1000 No Max Bank of New Zealand GlobalPlus Business 17.95% No Max Kiwibank NZ Business MasterCard 16.90% N/A No Max ANZ Bank Visa Business Free Days 19.95% N/A 500 No Max ASB Bank Visa Business 19.95% N/A N/A N/A Bank of New Zealand Business First Visa Control 18.95% N/A 500 No Max ANZ Bank Visa Business CashBack 19.95% N/A 500 No Max Westpac BusinessPLUS MasterCard 19.95% N/A N/A N/A your guide to product excellence Report Date: 9/07/2014, (All information is correct as at July 1st, 2014) Credit Card Star Ratings page 1

11 Credit Card Star Ratings Report Date: July 2014 We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you TRANSACTOR Company Product Rate (as at 07/01/14) Free Days Annualised Fee Annual Fee ($) (as at 07/01/14) Spend to Waive Annual Fee Minimum Credit Limit ($) Maximum Rewards Program Availabe "outstanding value" ANZ Bank Visa Business CashBack 19.95% N/A 500 No Max Bank of New Zealand GlobalPlus Business 17.95% No Max American Express Business Card N/A N/A N/A N/A Kiwibank NZ Business MasterCard 16.90% N/A No Max Westpac BusinessPLUS MasterCard 19.95% N/A N/A N/A American Express Business Gold Card N/A N/A N/A N/A ANZ Bank Visa Business Free Days 19.95% N/A 500 No Max Bank of New Zealand Business First Visa Control 18.95% N/A 500 No Max Bank of New Zealand Business First Visa Lite 14.95% N/A 1000 No Max ANZ Bank Visa Business Low Rate 15.20% 0 70 N/A 500 No Max ASB Bank Visa Business 19.95% N/A N/A N/A Diners Club New Zealand Business Card N/A N/A 0 No Max Westpac Business MasterCard N/A N/A N/A N/A your guide to product excellence Report Date: 9/07/2014, (All information is correct as at July 1st, 2014) Credit Card Star Ratings page 2