Tandem to introduce monthly charge on cashback credit card

Tandem to introduce monthly charge on cashback credit card

With sources of profit proving elusive in the competitive challenger bank market, Tandem has acted to raise returns by announcing that users of its cashback credit card will be charged a monthly fee of £5.99 from 9th March.

The challenger bank's credit card was launched in early 2018 offering 0.5% on all purchases and free overseas transactions.

Customers have been contacted by Tandem inviting them to sign up to a new membership scheme to retain these benefits. Should they choose not to, their card will stop working in two months' time.

Tandem has attempted to cushion this unpleasant news by unveiling a savings account paying 1.5% AER, on offer to customers who retain their credit card.

While a competitive interest rate, it is unlikely to offset paying £72 a year for the continued use of the credit card.

The initial response from customers on social media has been less than positive with many stating their intention to let their credit card with Tandem lapse.

"Will be a shame to say goodbye, but £5.99 a month. Come on! Wake up! Off to dust my Nationwide credit card," said one.

"I loved using the card but unfortunately for you I’m your least profitable customer who pays off their balance," was another response. "This is not an investment I'm interested in - and will look at other nil cost cards - I’m out!"

Tandem's performance post-March 9th could serve as an indication for how challenger banks fare once they introduce fees and charges as a means of balancing the books.

CEO Ricky Knox highlighted to customers that in order to offer products and services that consumers seek, they "need that offer to be sustainable".

The search for profitability in the challenger bank scene has seen the new wave of app-only banks behaving more like traditional incumbents in the search for new sources of revenue. Tandem's move follows the recent hiking of overdraft fees by Monzo and Stalring.

Knox added: "We’re taking the opportunity to test a membership model that preserves all of the benefits of the cashback card and more."

Comments: (1)

A Finextra member
A Finextra member 10 February, 2020, 15:44Be the first to give this comment the thumbs up 0 likes

Over on Sifted https://sifted.eu/articles/tandem-fundraise-2020-cto-left/ there's an interview with Knox where he explains that:

"We ended up attracting the wrong customers...The people who are good at saving money are actually the people who are fuc**ng loaded... We realised we were going to have to let those guys go. They were losing us money." 

Sounds like the product was designed to lose money from the start but a sustainable and attractive product may be hard to design.

I'm not sure that the new model is much better in terms of profitability. With no interest charges, it depends on whether the £72 a year fee is enough cover the credit risk and funding costs plus the cashback they are paying!

I do hope that Tandem have worked it out properly this time and that they don't end up attracting another sort of "wrong customer" who maxes out on interest free credit.