0% deals - does anyone know why they exist?

gallen9_2

Can credit card companies really make enough money from the people who don't leave and afford to give away the cost of funding all the 0% balances for those people who do? If they're just using their existing customers to fund it, doesn't that mean that people taking multiple 0% deals are just taking it from the people too uninformed to move?

johnllew

Can credit card companies really make enough money from the people who don't leave and afford to give away the cost of funding all the 0% balances for those people who do?

Yes.

If they're just using their existing customers to fund it, doesn't that mean that people taking multiple 0% deals are just taking it from the people too uninformed to move?

Yes.

Milarky

You may be aware that offers for 'personal loans' often start dropping through your letterbox after you become a credit card customer on a 0% deal?

What this suggests is that the strategy of many credit card companies is to try and sign people up for fixed rate credit by putting them into debt in the first instance [eg BTs], and hope they just make the minimum payments thereafter, leaving them with balances which revert back to standard rates [though this would be with other card providers, logically?].

'Life of Balance' deals will be a bit 'cheaper' of course, but are rigged such that normal use of the card then starts to produce a standard rate balance which does not get repaid until last.

I have heard that research suggests that about 1 in 8 customers may be 'stoozing' [borrowing at 0% without geniune debts] in some way. But that leaves a large proportion that are far less 'clued up' and therefore are susectable to the various 'inducements' to take on debt - the 'lifeblood' of banks.

Galstonian

The other question is whether they track these "losses".

If a campaign brings in X number of customers from competitors it may be deemed a success. The fact that they make no money from these customers may be overlooked. Isn't business wonderful?

zcaprd7

I'm sure they'll factor in the 12.5 % 'loss' from 'stoozers'...

Galstonian

But its not a 12.5% loss from stoozers (or even super tarts ), it is merely a 12.5% reduction in the potential profits if the figures of 1 in 8 are correct and the debt is distributed evenly.

Milarky, do you a source for the 1 in 8 figure?

Milarky

Milarky, do you a source for the 1 in 8 figure?

Errmm!.. his name is 'chris'... but I think it was posted in a BBC online report recently???? :-[

zcaprd7

Yes ok - less profits ....

I wonder how long after 0% ends they break even - I guess not long given some of the standard rates?

Galstonian

The point I was trying to make was that the "losses" may not even be noticed or if they are then they are not significant enough to be recognised as a problem or (and this is unfortunately most likely) they don't care.
I think we all recognise that big businesses are not perfect organisations, it is simply a "Dilbert" scenario - Marketing are set a target to attract a number of new customers from competitors. Nobody remembers to put in the proviso "and make money from them" so they don't. Add to this the headline grabbing element of some deals, perhaps Barclays isn't the best example given some of the headlines they've managed to grab but the old "no publicity is bad publicity" adage comes into play.

I don't have any doubt that some people from some card issuers know full well what is happening (hello Ian if you're reading ) but you also have to realise that many many people are not making money from credit cards, just have a look at the loans and debts board for an insight into that. Yes, there is a definite increase in the visibility of tarting/super-tarting/stoozing but it still doesn't mean that everybody is doing it despite how it might seem on this forum. I don't know anybody else who tarts/super-tarts/stoozes (apart from the people I know through websites devoted wholly or in part to these practices). I have told many friends and relatives and so far only one has shown any real interest but has yet to take that first step. I do know people who have taken advantage of a single 0% offer but for some reason they seem reluctant to string these together.

To answer the question originally posed, yes, people taking multiple 0% deals are just taking it from the people too uninformed (or those who are informed but too lazy/scared or unable) to move.
I would also add that these people fund the whole marketing and advertising budgets as well and when (or if) the 0% deals dry up its unlikely that the amount they pay will be reduced, the money will be used to try and attract business in a different way.
Existing Standard Variable Rate mortgage customers (presumably) fund the whole discounted mortgage market and that seems to just roll on and on. By making it easier to switch between lenders and rewarding disloyalty you could argue that it is the credit card issuers who are making the market what it is, but I've yet to hear of any of them really making losses despite the "competitive" nature of their business.

Joe_Bloggs

They are a 'loss leader'. They sucker you into the consumer spending store and make you spend more than you can afford on things you would not otherwise buy if it was in hard cash.
Then allover sudden they start charging 15-20% when the deal is over. It is the gullible who pay for it all.
J_B

Galstonian

It is not always a loss leader. There must be a large number of people who transfer a balance at 0% then use the card for spending without realising that they will need to pay of the BT before they can clear the balance which is attracting interest.