Credit cards decline amid buy now pay later boom
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In the twelve months to March 2019, almost half a million Australians got rid of their credit cards, with the total number of credit cards in the country falling to 14.6 million compared to the 15 million a year prior.
This trend, highlighted in illion’s second Credit Card Nation report, suggests that Australia has surpassed ‘peak card’ and is now on a long-term downward trend in terms of credit card ownership.
According to illion chief executive Simon Bligh, falling house prices have had the secondary effect of causing urban Australians to consolidate their financial position – including a focus on clearing unnecessary debt.
“In the country, it’s a different story, and many parts of rural Australia have faced extenuating circumstances with their livelihoods heavily impacted by the drought,” Bligh said.
“Farmers have needed support with their cash flow and have turned to credit cards.
“The Australian economy is facing weak spending patterns, low wage growth, high levels of mortgage debt and low rates of saving.
“While the number of credit cards overall is falling, those who have them are using them more often. Some consumers are struggling to manage their cash flow and are opting to drift into debt rather than pay off their bills immediately.”
According to the report, card-based transactions are likely to continue to fall in volume due to the rise of alternative payment systems, such as direct debit, PayPal, BNPL, and payment through social platforms such as Facebook.
“In the country, it’s a different story, and many parts of rural Australia have faced extenuating circumstances with their livelihoods heavily impacted by the drought,”
According to Bligh, as credit lenders have adjusted their assessment criteria based on increased pressure from regulators, credit users who were already problematic are finding it more difficult to obtain further credit, while those who are low-risk and high-reward have been able to maintain strong credit ratings.
“But here’s where it gets interesting – our research this time around shows that millennials are now the only group that have increased ownership of credit cards,” Bligh said.
“Granted the numbers are small, and you may be asking why this is – especially as we know that young people under 25 pose the greatest risk of failing to pay back their debts and are almost six times more likely to be two months behind in their repayments than their parents.”
There are two potential reasons for this, Bligh said. Firstly, millennial men are using both credit cards and buy now pay later services, and secondly that market forces may be pushing credit lenders to take on more risky endeavours to keep their numbers up as overall credit usage falls.
“Our society is in the early stages of moving towards a buy now pay later approach for many low-cost items, with this coming at the cost of a general decline in the usage of credit cards,” Bligh said.
“Young people are at the forefront of these changes and are using both at the moment – almost in equal measure.”
Questions & Answers
Q.What is the primary reason for the overall decline in credit card ownership in Australia?
What is the primary reason for the overall decline in credit card ownership in Australia?
The decline is mainly attributed to urban Australians consolidating their financial positions due to falling house prices, and a general move towards clearing unnecessary debt. The rise of alternative payment systems also plays a role.
Q.Why are credit card numbers in rural Australia behaving differently from urban areas?
Why are credit card numbers in rural Australia behaving differently from urban areas?
Farmers in rural Australia, heavily impacted by drought and facing extenuating circumstances, have needed support with cash flow. They have reportedly turned to credit cards to manage their financial needs during this period.
Q.Which demographic group is increasing their credit card ownership, and why is this notable?
Which demographic group is increasing their credit card ownership, and why is this notable?
Millennials are the only group increasing their credit card ownership, which is notable because young people under 25 are six times more likely to fall behind on repayments than their parents.
Q.What two potential reasons are suggested for the increase in credit card ownership among millennials?
What two potential reasons are suggested for the increase in credit card ownership among millennials?
Millennial men are reportedly using both credit cards and buy now pay later services. Also, market forces may be pushing credit lenders to take on more risky ventures to maintain their numbers as overall credit usage decreases.
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