No savings to pay for the new iPhone 15? No problem.
Rogers Communications Inc. RCI-B-T, the telecom giant with a side hustle in banking, offers a Mastercard that lets you finance a cellphone on a 48-month plan with 0-per-cent interest. The new card tells us something about the marketing of wireless phone service, but it’s also a window on the credit-card business in this year of living expensively.
Canadians are still spending, but there are signs of exhaustion brought on by inflation and high interest rates. A study by American Express Canada shows that more credit-card holders are redeeming points for groceries than travel, and it’s not even close.
The new iPhone 15 introduced this week starts around $1,100 and gets up to $2,000 and beyond as you move into premium versions. That’s in line with what the average family of four pays for groceries over a month, according to the 2023 Food Price Report from Dalhousie University’s Agri-Food Analytics Lab.
Rules prevent telecom companies from offering contracts of longer than two years, which means the cost of financing a phone purchase through a carrier is expensive. The Rogers offer of 48-month equal payments without interest sidesteps that rule. The company says its offer cuts monthly device payments by as much as half compared with 24-month financing, and you don’t need a mobile contract to take advantage. You do need to buy the phone at a Rogers, Fido or Shaw store.
The 48-month payment plan from Rogers is similar to the “buy now, pay later” offers available from many companies, including airlines. BNPL is designed to lure people who might otherwise balk at a purchase because it seems unaffordable.
If you grab one of these offers, check to see how much you’ll pay if you don’t make a scheduled payment on time. Rogers says you’ll be charged interest on the unpaid amount at its regular card rate, which is 19.99 per cent.
The Rogers card has no annual fee, which makes it customer-friendly in a period of high living costs. The same goes for another new credit card that reflects the times: Capital One’s Smart Rewards Mastercard.
While the typical reward card offers points when you spend, this one rewards you for paying down your balance. Every dollar paid earns five points that can be redeemed for account credits with no minimum, or for gift cards.
RewardsCanada.ca says the value of these points works out to getting cash back at a rate of 0.67 per cent, which compares with 1 per cent to 2 per cent for the Rogers card and as much as 5 per cent for premium reward cards with annual fees. It’s also worth noting that this card has a slightly higher interest rate than most peers at 21.9 per cent.
Capital One describes its Smart Rewards Mastercard as celebrating positive financial habits – a timely selling point. The credit monitoring company TransUnion Canada says the average balance for customers using their card for purchases was up 9.4 per cent in the second quarter of the year on a year-over-year basis to $4,200.
So far, most cardholders are keeping up with paying their balances off each month. TransUnion said about 26 per cent regularly carry a balance, up slightly from 24 per cent in 2021.
Financial pressure on cardholders is primed to increase, though. The ratio of debt to disposable household income hit 184.5 per cent in the first quarter, which means an average $1.85 in debt to every $1 in after-tax income. Twenty years ago, the ratio was below 120 per cent.
High living costs will persist until inflation eases and interest rates start to decline, likely some time in 2024. For the credit-card business, this outlook suggests a need to focus on people who are worried about affordability.
In the Amex Canada study, based on a survey of 676 people with all types of rewards credit cards, 44 per cent of participants said they used points for groceries and 33 per cent used them on travel. Amex doesn’t have year-earlier numbers to compare, but the concept of credit-card rewards was built on aspirational travel and not on buying bread and milk at the grocery store.
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Rob Carrick