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Pick n Pay feels the heat

Argues that its credit offering is a targeted attack at credit providers.

Debt counsellors and sceptical consumers are outraged at Pick n Pay for what they perceive as a brazen attempt to lure consumers further into debt, following the retailer’s launch of a credit offering last week.

Pick n Pay’s new store card will allow qualifying Smart Shopper customers to purchase Pick n Pay goods on credit. If they settle their account in full within 55 days, no interest is charged.

“The decision by Pick n Pay to sell food on credit in their supermarkets is going to come back and haunt them because there is going to be a massive demand for this product and hugely debt-strapped consumers are going to default on these loans on a scale not seen before,” says Neil Roets, CEO of debt counselling firm Debt Rescue.

If consumers had to resort to buying food on credit then it was unlikely they were fully credit-worthy, as required by the National Credit Act, he added.

More than half of South Africans are three months or more behind in their repayments having collectively notched up some R1.71 trillion in debt, according to the latest National Credit Regulator statistics.

“We are in the midst of an exceptionally difficult economic cycle where the price of everything is skyrocketing with salaries and wages in many cases remaining static. If consumers have reached the point of desperation that they had to buy food on credit that means that they are already at the end of their tether and in my view should not qualify for yet more credit,” he says.

However, Pick n Pay deputy CEO Richard van Rensburg argues that outraged consumers have not understood their intentions. “People haven’t read into what we are doing. I completely agree that using the proceeds of interest-bearing debt to buy food and groceries is a bad idea.”

Rather than luring more customers into debt, Pick n Pay is targeting middle-income consumers in a bid to “ruffle feathers” and challenge high fees in the banking industry. “South Africa’s debt burden is huge. The biggest thing that is sucking disposable income out of the economy is the high cost of credit. Hidden costs such as initiation fees, administration fees, mandatory insurance fees and penalty fees exacerbate the cost of credit. We have worked with RCS to design a product that has none of these hidden fees and carries a nominal R10 monthly service fee,” he says. 

The target credit customer is drawn from its seven million Smart Shopper customers; one who typically does not have a credit card, but may have a debit card. They may have a bond already or be saving towards one. Ideally the shopper will deposit money into his or her bond or savings account at the beginning of the month and allow it to accrue interest. At the end of the month, or the rolling 55-day credit cycle, those funds are then used to pay off the grocery account, which has accrued no interest.

“These are not people who earn a Sassa grant or who earn less than R10 000,” Van Rensburg says adamantly. “Although they are being exploited by loan sharks and worse, there is no way we will grant them credit.”

He estimates that if the retailer is able to attract about 150 000 shoppers onto the system it will incentivise lenders to bring down the cost of credit.

“Our target is the credit charges that the industry is charging our customers – interest and other fees.”

Pick n Pay made an upfront decision not to earn income off the interest charged to consumers. “We are not in a profit-sharing deal with RCS,” he says. “We were clear there could be no conflict of interest here. When it comes to the high cost of credit, we are on the side of the consumer.”

Of course if the consumer does get into trouble, then they will be liable for the interest fees charged by RCS, which fall within the bounds of the National Credit Act.

Where Pick n Pay will gain is if shoppers using credit and debit cards migrate to the new Smart Shopper credit card, which bypasses the National Payment System.

In the past Pick n Pay chairman Gareth Ackerman has been vocal about the high cost of bank charges, which have grown as customers have switched to using plastic. On every credit card transaction about 1.4% of the transaction amount is paid to the banks, while on debit cards the cost is lower at 0.55%. This is higher than European benchmarks, which are about 0.3%.

Pick n Pay has negotiated lower charges with RCS. “In the closed loop system with RCS we will pay roughly half of what we pay the banks,” says Van Rensburg. Despite this being lower than the banks, it substantially contributes to RCS being able to offer the free credit, he says. In addition, the low R10/month fee was possible because Pick n Pay could technically integrate to smartshopper, thus avoiding a card issuing expense. Statements are issued on the smartshopper app, again reducing costs.

However, for the banks to really notice a dip in this revenue stream Pick n Pay will have to attract about 500 000 customers to its card.

It is early days yet. Pick n Pay has received 7 000 applications so far, and has approved 1 000 of them.

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Biggest load of bull. No business is out there with the intntion to “ruffle the feathers”, they do things because they want to make more money. If it was truly about what they say it was, we would have seen PnP targeting these people with a different product, maybe a loan that comes with a low interest rate and admin fee, maybe even a shop-anywhere credit card with the same features, but not a PnP only solution. Bad move PnP, and an even worse comeback. You are insulting the very people’s intelligence whom you are trying to attract.

Agree this is all about supposed lower fees but none the less fees hidden amongst the price increases too.
Lure people into the store give them credit, watch them get the staples and them just because there is still a little left in their credit balance watch them buy something they don’t need. Marketing will have analyzed the “basket” and the little extras that the extra feet will buy and will have loaded the extras just a touch. Extrapolate that over the country and you add a billion to the bottom line. Disgusting PnP.

This is the “problem” PnP hopes to solve: “On every credit card transaction about 1.4% of the transaction amount is paid to the banks, while on debit cards the cost is lower at 0.55%. This is higher than European benchmarks, which are about 0.3%.”

PnP wants that extra 0.85% for itself. The mistake they’re making is in failing to give the high fees the benefit of the doubt. Maybe they’re higher than in Europe for a reason… something to do with our fraud and default rates, perhaps?

One way or another this store-credit idea – if they don’t come to their senses and scrap it – is going to blow back so hard it may not leave them standing.

Fir a nominal fee of R10 a month, they are looking at multiplying that over the no. of people who will fall for this. Be that as it may, PnP will pay a heavy price for this move. The majority of people in this country are heavily indebted and those of us who are not are financially literate and have no interest in this load of crap. Buying food on credit is a no brained, never was and never will be.

Ouch Pick `n Pay Ouch- Forever ouch

It is indeed sore… I feel the Ouch too.
Any working man with debt is sick…. Pick ‘n Pay is just adding to the sickness. I see no point in waking up every day of the month to a job that pays you in a 30 day cycle for you to be paying all of it back to creditors. The working class should shift their mindset from being consumers to being wealth accumulators. Your salary is yours and it does not belong to creditors… cut your debts and you wont need credit to buy food. No matter how little you earn.

It seems that the board of Pick ‘n Pay are some of the worst leeches we have in the country. Fire them all. Promoting debt amounts the poor is the same as treason against the population.

Tie them up and trample the board to death!

You dont have to take up the PnP card if you do not want it. You also do not have to take a RCS loan, African or Capitec Bank loan or store cards from Woolworths/Foschini etc.

You have the choice to accept or reject credit. If PnP offers it – let them.
We cannot have a nanny state-you need to look after your own financial affairs( and here in Zuma land your own medical, security, education , electricity and shortly water!!)

R10 is actually very expensive if you look at it with all things considered. You can get a gold MC at any bank for approx R45pm. With your MC you can shop ANYWHERE with centralised credit. The alternative is having 4 credit facilities at 4 stores before you start losing. This essentially removes your right of customer choice to save a measly R35. You will waste more than that on PnPs convenience trapping.

Objectively this is a bad deal. You can claw back R35 easily by being a savvy consumer.

Separate credit facilities per store is literally backwards; it was that scenario in which credit cards were the solution.

Credit is necessary evil. For any economy to grow credit issuance is necessary be it to buy a car house or fast moving consumer goods. But the problem with credit in developing countries comes down to the high cost and high interest rates charged, that’s why its dangerous. People in the know will tell u that the money is made not in selling goods and services but in issuing credit. After all when u think about it credit is actually about selling money – the goods and services are just thrown in. PnP are in it to bleed the debt stricken soul a little more – the board should case study the Edgars/Edcon story.

Edgars/Edcon were appallingly poor at administering their customers debt, and sold most of their product on credit. Also they had this stupid notion that the more you spent through their stores so they ramped up your purchase limit, and didn’t look at repayment commitments in setting the limit. To my mind PnP needs to issues these cards with circumspection, and maybe only to initially the upper quartile LSM clients to test the water first

Being a consumer activist and on a daily basis advises people on their bad habits and how to get out of debt and stay out of it and how to handle debt collectors as a last resort this is the most dumbest thing I have encountered in a very very long time. Offering the people that can least afford it a credit card to buy food on credit and pay it off over 55 days 6 months, 12 months or whatever is not helping them – it is assuring that they are going to get into trouble……………..There is definitely a darker motive here – And I suspect that all is not well with P&P. The festive season is in front of us and they know people are not going to spend as usual…………so make it easy for them…..Give debt collectors a good income and hopefully they will come and spend it with P&P. I have always contented that those loyalty cards and them having your undated detail is going to be misused in the future…and guess what ? That future has just arrived !

Its the high interest rates that lenders are allowed to charge that creates so much borrowing among consumers. An authority needs to place a limit on the interest lenders may charge. That will discourage lenders offering credit.

PnP’s response has all the hallmarks of corporate PR aka spin doctoring. They are offering the same terms as banks (max 55 days interest free), with lock-in to a single merchant. That already makes this a bad deal. The only people who will apply will either be ignorant of this fact (uneducated) or rejected by banks. There is another possibility: they will actually be middle class and already maxed out on their cards. None of these are appealing prospects.

Pick ‘n Pay should stop the devious tactics and focus on cutting prices-competing like every other supermarket in the world.

YOU GO PICK AND PAY ! Those complaining is a case of sour grapes- the more competition out there the better.
When African bank was forcing unwanted insurance via Ellerines onto unsavvy clients nobody was complaining.
These naysayers should rather complain at what the big 4 banks charge to withdraw cash from their ATM’s
Pick and Pay are helping people who live from one salary cheque to the next.

Just imagine this scenario:customer arrives at the till to pay, but they have no more credit left because they haven’t paid for previous PNP purchases.Now push comes to shove at your local PNP with raised voices, shouting, crying and it will be repeated thousands of times at PNP countrywide. Maybe these incidents will make the headlines, maybe not.Either way, PNP’s name is sullied, especially if, say, new moms’ are trying to buy milk,bread,nappies – the basics of daily life.

However, for the banks to really notice a dip in this revenue stream Pick n Pay will have to attract about 500 000 customers to its card.

It is early days yet. Pick n Pay has received 7 000 applications so far, and has approved 1 000 of them.

Somewhere somebody could have bought a bread with the fees they pay — I never ever used debt – Somewhere that guys paying their debt will rethink – Did we do good – ??? Impressive for us…

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