Australians have changed their use of credit cards in a massive and potentially permanent way since the global financial crisis, latest research suggests.
More cardholders are choosing to use their own money rather than credit and it has major implications for Australia’s financial institutions, according to the RateCity study.
“Credit cards are becoming less important than they were five years ago, and we’re seeing a definite trend towards Australians using their own money,” said Michelle Hutchison, spokeswoman for RateCity.
“In 2008, credit transactions accounted for around half of all card purchases. But in recent years consumers have reached for their EFTPOS and debit cards more regularly for everyday purchases in place of cash.”
Latest Reserve Bank of Australia (RBA) data shows that credit accounted for just over a third of card purchase transactions in April this year, while almost two in every three card purchases used the customers own funds.
The national total balance for credit cards hasn’t grown in the past three years, holding steady at $50 billion. At the same time, cardholders are making larger repayments, the RBA data revealed.
RateCity also found that the total number of credit card accounts opened each month has slowed from 6 percent year-on-year in April 2005, down to 2 percent in April 2013 compared to the same month last year, says Hutchison.
In total dollar value, credit cards still reign; credit card purchases accounted for 60 percent of all money put through card purchases. However, that proportion has slowed from 70 percent since the onset of the GFC.
“This isn’t just a seasonal swing; it’s a permanent change in the way consumers are making purchases. We’re not surprised that EFTPOS and debit options have edged their way into the market in recent years given the uncertainty around global financial markets, because consumers are more cautious than ever about taking on debt,” she said.
As Australians’ appetite for credit slows, providers are tightening the belt on rates.
Of the 222 personal credit cards in its database, only 13 credit cards have had their rates reduced since May’s RBA-led rate cut, putting them out of step with the RBA’s cash rate. Some providers have hiked rates on their credit cards by as much as 2.04 percentage points.
So it’s more important than ever that consumers shop around and compare credit cards to find one that is most suited to their circumstances, says Hutchison.
“It’s unlikely that we’ll see a world without credit cards, at least for the next decade. The big shift will be in the way people use their credit cards – for big ticket purchases rather than everyday items – something we’re already seeing,” she said.