Is this the end of credit cards?

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Australians have changed their use of credit cards in a massive and potentially permanent way since the global financial crisis, according to new research from RateCity.

Damian Smith, RateCity's CEO, said more people are choosing to use their own money for purchases instead of credit, and it has major implications for Australia’s financial institutions.

"Credit cards are less important than they were three years ago, and we're seeing a definite trend towards eftpos and debit cards.

"In 2008, credit transactions were by far the most common type, accounting for around half of all purchases. But over the past three years consumers have begun using eftpos more regularly for everyday purchases in place of cash – making it the leading single transaction type in the country. 

"Although it’s still small at 12 percent of total transactions, debit card usage is the fastest-growing, having more than doubled in this time," he said.

New Reserve Bank of Australia data revealed this week the total value of credit card balances has dropped for four out of the past five months. The national total balance has been decreasing for four straight months too – a new record since RBA reporting began 26 years ago, according to Mr Smith.

"This isn't just some seasonal swing; it's a permanent change in the way consumers are making purchases.

"We're not surprised that eftpos and debit cards have edged their way into the market in recent years given the uncertainty around global financial markets, because consumers are now more cautious than ever about taking on debt. Plus eftpos went out with an aggressive marketing push at a critical time, which has really helped to raise awareness with consumers," he said.

In total dollar value however, credit cards still reign with around two-thirds of all dollars spent on plastic put through credit in October 2011. RBA data shows that while the number of purchases made on credit has declined, national credit card debt accruing interest has still grown $1.78 billion (5.17 percent) since October 2010. To put that in context, $1.78 billion of credit card debt means over $21 million of interest income for Australia’s lenders.

"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. However, the growth of mobile transactions will pose an even bigger threat to traditional credit cards over that time, with some exciting new products already coming onto the market," he said.

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