A credit card for businesses
The opportunities and needs in a business, especially a small one, occur suddenly and seemingly out of the blue. But unfortunately, an entrepreneur does not always have enough money “in the pocket” to take care of some urgent matter. Unless he has a business credit card in that very “pocket”. Serhii Orel, Manager for Development of Credit Cards at Raiffeisen Bank Aval, tells us about this very convenient financial instrument.
How long ago has a business credit card appeared among the products of your Bank?
Back in 2011, Raiffeisen Bank Aval was the first to enter the Ukrainian market with business credit cards. During these years, the product became very popular, and today, it’s one of the major types of unsecured loans for businesses. Every third sole proprietorship – customer of our Bank takes advantage of this instrument. The reason for its popularity is this: a credit card is a flexible and transparent instrument of financing unforeseen or short-term business needs, convenient and affordable.
Many entrepreneurs still use credit products for private individuals to meet their business needs. Is it justifiable?
When introducing a business credit card, we bore in mind that according to law, an entrepreneur is required to separate their personal expenses from business expenses and pay for them from separate accounts. A business credit card is an instrument that helps separate these expenses. With a business card, unlike in the case of that for private individuals, a customer won’t have to think whether he’ll be able to use it to pay to counterparties and purchase goods, or whether fiscal authorities will start questioning these transactions…
What advantages does the use of a business card offer vis-à-vis a regular card?
Comparing to credit cards for private individuals, it has a lower interest rate and lower cash advance fee. As a result, the debt servicing cost is significantly lower and the credit limit is much higher and sufficient to meet business needs. While the real interest rate on individual credit cards in the market is around 40% (varying from 36% to 46%), the APR on the “Entrepreneur credit card+” is 29.9%. Surely, there are financial institutions advertising the interest rate of 24-26%, but they also charge a debt servicing fee of 2-4% per month, “thanks” to which, you can easily add 20% more to the interest rate.
A credit card or overdraft protection? What are the nuances and advantages of the former?
These products are designed for different situations. A credit card is a financial instrument intended to help businesses solve short-term problems with liquidity or shortage of working capital. Comparing to traditional credit products, such as overdraft protection or line of credit, the advantage of a credit card lies in the flexibility of its use, the cost and availability of funds “here and now” for any needs. The “Entrepreneur credit card+” offered by Raiffeisen Bank Aval is characterized by the relatively low price of debt servicing, and moreover, no fees of any kind are charged if you do not use it. In other words, a customer may apply for this product immediately after opening an account at our Bank but start using it only when he would really need additional funds. A credit card is issued for four years with the automatic prolongation option. You can put it in a safe and forget about it, but when you need money, this “plastic” will come to rescue.
Did the quarantine have an impact on the use of credit cards by your Bank’s customers?
The COVID-19 pandemic and the restrictions imposed by the introduction of quarantine in the country became simultaneously a significant stop factor for business development and a driver that affected many processes. Payment (including credit) cards are, probably, one of the most adaptable banking products to the imposition of restrictions, because they allow to make payments to partners and counterparties remotely, provide access to cash inside the country and abroad, help make online payments, stimulate the use and development of e-commerce, which is extremely important in the time of government restrictions. The terms of financing did not change during the quarantine, especially since we have substantially upgraded this product shortly before it was imposed.
How did the quarantine restrictions affect the procedures related to this product?
During this period of crisis for businesses, refinancing became a matter of concern. We put ourselves in customers’ place, which is a priority for us, and changed the approach to this procedure. In the past, a customer wishing to request refinancing or a credit card payment holiday had to visit a Bank branch to sign application forms or an additional agreement. The quarantine prevented us from working with customers in a regular way, and therefore, we offered an opportunity to refinance a credit card debt without visiting a physical branch. This experience proved itself well, and as the next step we are going to relieve customers from the need to visit a Bank branch even to apply for a credit card. The entire document flow will take place in digital channels.
Do you have plans for further development and improvement of this product? If so, what are they?
The needs of our customers constantly change, so our product is being transformed to meet their expectations. This year, for example, we changed both the parameters of credit itself and the credit approval process. According to the revised terms, to apply for a card with a credit limit of up to 150 thousand hryvnias the customer is required to provide only their passport and identification code, and the Bank will make a preliminary decision regarding the credit card application in just 5 minutes. If an applicant needs a credit card with the limit exceeding the aforementioned amount, a small additional document package including financial statements will be required, and the decision on application will be made within one business day.
What are presently the terms of financing under a business credit card?
In March, this product was modified and two new products were introduced as a result:
• “Entrepreneur credit card+”, an organic continuation of the previously existing product but with much more attractive terms
• Cobranded “Fishback Business credit card”, a new product that combines the options of a regular credit card and the advantages of Fishka loyalty program
For both these products, the maximum credit limit was raised to 300 thousand hryvnias and the validity period was extended from two to four years with the option of automatic prolongation for the same period. The minimum monthly payment was lowered to 5% of the outstanding credit card balance. Other terms depend on the product you choose.
The key advantages of the “Entrepreneur credit card+” product include:
• 60-day grace period for card transactions and purchases
• Flat cash advance fee on transactions at any bank in Ukraine and abroad: 2.5% + 15 UAH
• Credit card interest rate: 29.9% APR
• No debt servicing and card issuance fees
As for the “Fishback Business credit card” product, its distinguishable feature is Fishka loyalty program, which in addition to advantages of a regular credit card entitles the holder to:
• a cashback of up to 20% of the card purchase amount
• a fixed discount on fuel purchases: 4 UAH/liter on gasoline and diesel fuel, and 1.5 UAH/liter on autogas for card purchases at OKKO filling stations
• discounts on card purchases at partner stores
