Charities to get their due credit

Britain's only credit card to give cash rebates, rather than points or other rewards, is looking at offering card-holders the option of having those rebates paid automatically to nominated charities.

The proposal, by Alliance & Leicester's Money Back credit card, could increase competition among charity-linked credit cards, with other card companies coming under pressure to increase the donations they give on card-holders' spending.

The spending rebates of up to 2 per cent offered by the A&L card are noticeably more generous than those on most charity cards. Many holders of the A&L Money Back credit card can expect to earn rebates of pounds 50 or more this year. The same spending on a charity-linked credit card might trigger donations of just pounds 20.

A&L is assessing demand for the service following a suggestion in last week's edition of the Independent on Sunday. Assuming reasonable demand, the former building society plans to put an option in card literature for rebates to be paid direct to one of a limited choice of charities, which could include any permanent charitable foundation set up as a memorial to Diana, Princess of Wales. A&L said it favoured "humanitarian" charities although it would be guided by cardholders and the likelihood is it would offer a choice between a range of charities including third-world aid and conservation charities.

Existing holders of the A&L Money Back card are invited to call 0645 250 250 and to indicate whether they would be interested in the service and which charities they might want to support; people applying for the card on 0500 83 83 83 can also express an interest and name their favoured charities.

A&L's Money Back credit card has proved one of the most popular credit card launches of recent years. Since the spring it has attracted more than 160,000 people and the former society expects to pay at least pounds 5m in rebates in the card's first year.

The card has been particularly attractive to people who pay off their bills in full each month for the same reason that many of the people who sign up for charity-linked cards are full-payers: both offer "something for nothing", either for the individual or for a worthy cause.

The A&L card has no annual fee and the cash rebates of up to 2 per cent of spending can, in effect, be seen as a discount on purchases. The rebates are due to be paid out to cardholders in January in cheque form. As things stand, if cardholders want to pass the money on to a charity they will have to send off their own cheques to the charity; assuming A&L's move goes ahead this would be done automatically on their behalf. The idea is simply to make it easy for cardholders to be charitable: at present A&L expects most customers to pocket their rebates.

One executive in the charity-linked credit card market said of the effect of such a move: "Charities might well be coming back to us asking for a higher donation level." Charity credit cards are a small but growing section of the overall credit card market. While there are more than 1 million affinity cards in circulation that trigger donations to a chosen cause, only a proportion of these are for charities rather than, say, for clubs or universities. The typical deal is that when you sign up for a card, there is a one-off donation of pounds 5 to pounds 10. On top of this, every time you spend the card issuer makes a further donation equivalent to between 0.2 and 0.5 per cent of the value of your purchase, with most around 0.25 per cent.

The Co-operative Bank's Royal Society for Protection of Birds card has proved one of the most popular cards to date. The donation levels on this card are pounds 5 initially and 0.25 per cent thereafter, or 25p for every pounds 100 spent. On a spend of, say, pounds 2,500 a year, someone using this card would earn the RSPB pounds 6.25 a year on top of the initial pounds 5.

By comparison, the A&L Money Back card offers no initial benefit; rebates are directly linked to spending. For the rest of this year spending up to pounds 3,000 earns 1 per cent, and any spending over pounds 3,000 earns 2 per cent. From next year the rebates fall to 0.5 per cent and 1 per cent respectively. This year the same pounds 2,500 spent on the A&L card would earn a rebate of pounds 25, and pounds 12.50 in subsequent years. As things stand, the more someone spends the greater the difference between the A&L rebate and most charity- linked cards.

Assuming there is sufficient interest among card-holders, A&L hopes to be able to offer the charity option from early next year.