South African credit card owners offered crucial monthly relief

South African credit card owners offered crucial monthly relief

A new digital player is changing the face of South African Credit Life Insurance - and putting money back into the pockets of credit card holders in the process…

Credit cards are an increasingly important financial tool for South Africans. They can support major life projects such as the cost of education or provide end of month bridging finance to cover household expenses. Sometimes, they are the only way to manage the expense of big-ticket items, such as an expensive car repair. Recent research proves the point. A total of 27.76 million credit card transactions took place in South Africa in the month of January 2012, with a total value of R13.97 billion. By June 2018, the number of monthly credit card transactions in the country had almost doubled to reach 52.52 million, with a value of R29 billion. (source: SA Market Insights).

However, according to the National Credit Regulator (NCR), at the end of June 2018 a full 40% of South Africa’s nearly 25 million “credit-active“ consumers were behind with their loan repayments. Clearly, many credit card holders face a serious challenge in meeting their monthly commitments. Financial experts across the world therefore agree that credit card debt must be approached with a responsible mind-set in order to have a positive life impact. Being able to manage repayments in worse case scenarios, such as death, retrenchment or disability, is a crucial part of this responsibility. 

Many credit card holders rightly take out credit life insurance to cover their outstanding balance in the event they pass away, are retrenched from work or experience an unfortunate disability, rendering them unable to pay back their debt. But consumers who sign up for this important protection are often unaware that the costs involved can be significantly reduced.

“Most people who sign up for credit life insurance take the default product, supplied by the same institution that has provided the credit card,” says Tlalane Ntuli, co-founder and Chief Operating Officer at Yalu. “They are oblivious to the fact that they can actually choose a credit life insurance policy, and that this choice has major implications in terms of monthly payments.”

In most cases credit life insurance premiums do not reduce as the credit card balance reduces. Most financial institutions also generally charge flat fees for every Rand borrowed, regardless of the amount. As a result, consumers unwittingly pay the maximum amount for their credit life insurance. To make matters worse, not only do credit providers generally stay quiet about credit life insurance options, they are also notorious for smothering the process of switching service providers in paperwork and unreasonable requirements.

“Improving awareness about credit life insurance options and fees is just not in a bank’s commercial interests,” says Ntuli. “The status quo is very profitable, and so consumers have, until very recently, had very few options in making an active choice that reduces their monthly costs.”

Yalu’s 2018 launch challenged the status quo immediately. Backed by Old Mutual Alternative Risk Transfer Limited (OMART), the company spent a great deal of time and effort understanding the market demand for credit life insurance in South Africa, and then developed an online experience that lasts no more than five minutes, after which the consumer’s credit life insurance for various debt products is consolidated, and monthly costs in most cases reduced. Instead of paying high credit life insurance rates across different loans and credit cards, Yalu clients manage a single, optimised premium.

The Yalu experience is disarmingly simple. After providing a few basic details, the user is shown a list of their different credit lines. They then click the lines they would like covered, and Yalu shows them how much money they could save on their existing credit life insurance policy by switching providers. A few more clicks and a new credit life insurance policy is created. Where the consumer has an existing policy or policies, cancellation requests are sent to the original providers on the client’s behalf.

“We’ve been successful in developing a transparent, affordable and simple process that offers real benefits to consumers,” says Ntuli. “With a bit of tweaking and adjusting we have expanded the offering, which was originally only for personal loans, to cover credit cards, student loans and revolving loans. This is a big deal for consumers who want the protection that credit life insurance offers, but who need to manage their monthly financial responsibilities very carefully.”

“We knew it wouldn’t be easy, but we honestly didn’t expect such resistance from established financial brands. Nonetheless, we are overcoming it, one replaced policy at a time,” concludes Ntuli. “On the plus side, the response from South African consumers has been overwhelmingly positive. Yalu has only been in the South African market for nine months, and our vision to see South African consumers making better financial decisions through knowledge and education is definitely becoming a reality.”