Richer Rewards, More Fees As Credit Card Landscape Shifts In Canada

A significant shift is taking place in the credit card industry as major credit card partnership programs change hands and card issuers fight for more wallet share.

GreedyRates.ca, a credit card comparison site, released its quarterly report on the state of the credit card landscape in Canada.

Of note, the report revealed that Canadians are starting to receive more attractive offers from card issuers, with richer welcome bonus offers, annual fee waivers and more value per point earned.

Related: Aeroplan To Enhance Program, Cancel Expiry Policy

More than 100 Canadian credit cards were reviewed – 35% of which offered a welcome bonus to sign-up for the card – and the majority with an annual fee of $99 or more offered the equivalent of a short-haul flight as a welcome bonus.

Marc Felgar, founder and CEO of GreedyRates.ca, expects the competition to acquire new customers will heat up in the coming months as card issuers take advantage of the turbulence caused by Aeroplan’s potential move from CIBC to TD.

“These are unprecedented times for Canadian cardholders,” says Felgar.

One trend that stands out is how cash back credit cards are growing in popularity and the banks are expanding their line-up to offer more cash back options to meet the growing demand.

Nearly half of annual fee cards do not charge for supplementary cards, including several premium cards.

The report also revealed that the Canadian market does not offer significant competition in the low interest rate card and balance transfer card segments.

There was only one published 0% balance transfer offer, for a promotional period of 12 months.

This is a very different competitive dynamic than the U.S. or U.K. where 0% balance transfer offers are standard and last as long as 27 months.

“We’ve also seen some Canadian banks increase penalty rates, balance transfer fees and over-limit fees,” says Felgar.

That said, there are low interest rate credit card options for cardholders who carry a credit card balance in Canada.  The average interest rate for low interest cards is 12.2% compared to 19.7% for all other cards.

There are several stand-alone low interest credit cards as low as 9.9% with no annual fee.  However, most of the big 5 retail banks offer low-rate options for an annual fee ranging from $20 to $50.

Felgar says the increasingly rich rewards programs are having an impact on penalty rates and hidden fees, as banks try to maintain profitability.

“These rewards programs are, in large part, funded by one of the world’s highest interchange fee schedules,” says Felgar, referring to the fees that Canadian retailers pay each time you swipe your card.

The report revealed more credit card issuers are introducing and increasing their penalty rates by as much as 8% for a missed payment to an interest rate as high as 27.5%.

GreedyRates.ca’s full Q2 2013 Canadian Credit Card Landscape Report is available at: http://www.greedyrates.ca/article/q2-2013-greedrates-ca-canadian-credit-card-landscape-report.html