NIB brings in risk-based pricing

National Irish Bank (NIB) has become the first credit card provider in the Republic to introduce risk-based pricing.

When the bank announced new rates of 14.9 per cent APR on its standard card and 11.9 per cent APR on its gold card at the beginning of 2004, it said that some existing higher-risk customers would remain on the standard 18.2 per cent rate.

A spokeswoman for NIB said that the majority of existing customers and all new customers had been given the new lower rates.

Only a "very, very small proportion" of customers, whose card accounts had been consistently out of order, are still being charged the higher rate.

AIB plans to introduce risk-based pricing early in 2005. The bank is calling this method of setting interest rates "performance-based pricing", as it will consider the level of usage on the account as well as a customer's payment history when deciding rates.

The concept of risk-based pricing already exists in the credit card industry, where traditionally cardholders with a good repayment record on a standard card could move to a gold or platinum card with a lower rate, as long as they satisfied certain minimum income thresholds.

"But those customers would now have to pay stamp duty twice, so we have had to look at other ways of rewarding performance," says Mr Nicholas Moore, marketing manager for AIB credit cards.

Performance-based pricing is "part of the evolution of credit cards", Mr Moore adds.

"It's the norm in the United States and it's reasonably common in the UK."

According to Which? magazine, published by the Consumers' Association in the UK, the best rates offered by card providers using risk-based pricing can be very competitive.

New customers won't know what rate they are going to get until the company has considered the application, however, and it could end up being much higher than the lowest rate on offer.