Most households have at least one credit card or store card. These require the customer to pay either a minimum payment or clear the balance on a revolving basis. If an event occurs in the customers’ life and they are unable to meet their credit card payment, they may incur additional charges, late fees and negative credit rating which may cause the customer difficulties applying from credit in the future. With a waiver feature built into the credit card offering the customer has the comfort of knowing that certain events are taken care of.
The waiver promise could cover most nearly any eventuality, from the birth of a child, or a customer getting married, or if the child of a customer graduates from university. The aim of the waiver would be to remove the requirement to make a payment when the customers’ finances are slightly stretched. This can be for either a set period, such as 3 months for the birth of a child, or can require the customer to re-qualify each month to show that the event is still continuing, such as unemployment or sickness. It can be whatever the firm wishes it to be to meet the needs of their target market. Some credit card lenders ask whether a Payment Waiver feature will increase the cost of their card offering, the answer is: not necessarily.
Within any credit card rate charged the lender already has an amount allocated for acquisition, retention, arrears, bad debt, collections, legals, recovery, solvency profit and many other cost centres. Payment Waiver would certainly be another cost centre, but having Payment Waiver in place is expected to reduce the incidence of arrears, which in turn will have an impact on customer collection costs, legals, recovery and ultimately the cost of solvency. In most instances the true cost of the Payment Waiver feature is negligible. The lender will also be expected to receive more new business because of the enhancement to their credit card offering which is expected to ‘complete the circle’ and deliver a net positive position.
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