Credit cards still stagnant as the humble debit card’s popularity improves

Credit card use is still below its pre-pandemic levels, while debit cards are seeing somewhat of a resurgence in 2021.

The latest Reserve Bank (RBA) credit and debit card data for March 2021 reflects how these cards have been used in the 12 months since the pandemic truly impacted Australians’ way of life.

According to the most recent data, the number of active accounts fell slightly from February to March to still be 7.25% below the March 2020 level (14.48 million accounts).

Debit cards meanwhile are 3.5% above pre-pandemic account numbers (35.28 million), with a minor monthly increase in the number of cards on issue.

That doesn’t mean people aren’t using their credit cards – far from it.

The number of month-on-month credit card purchases increased by 3.25% (more than 268 million), and the value of these purchases rose by almost 5.5%.

Since March 2020, the number of credit card purchases is up by more than 9%.

But these figures are nothing compared to the debit card.

Over the past 12 months, debit cards have seen a more than 20% rise in the number of purchases to 796 million in a month, and the value of these purchases has increased by 19.3% to roughly $36.3 billion.

Credit card use plunged during the COVID-19 pandemic, particularly among younger Australians, and many got busy wiping off their credit card debt during lockdowns, with some help from stimulus payments, super withdrawals and increased savings.

So while credit cards are still being used, it would seem they’re being used more conservatively:

  • Balances accruing interest (i.e. debt) fell slightly over the month, and is now 26.3% below its pre-pandemic levels
  • Total balances on credit cards rose by 0.6% in March but are still down more than 16% over 12 months
  • The average balance accruing interest is about $1,550 dollars ($2,908 for total balances)
  • And even the number and value of cash advances (which tend to charge high interest rates) are down 7.5% and 15.7% respectively

The aversion to the higher interest charges on credit cards seems to be one reason for their decline compared to debit cards.

Payments expert Grant Halverson told last month that “out of date” product is another reason.

“Credit card debit, which is now 1.3% of all consumer debt, is fading badly because the major banks … are still hooked on airline point programs – which only attract transactors not revolvers – while they push mortgages as the major debt vehicle – which is working,” he said.

“Debit has been growing double digits since 2009 – that’s picking up consumer spend and debt is now split across a range of lending.”

Travel Spending is Back for Credit Card Users

Points chasers and travel enthusiasts seem to have reacted positively to news of the New Zealand travel bubble and interstate travel incentives, according to Citi’s April Credit Card Index.

Credit card spending in April was 35% higher compared to April last year when spending was at its lowest point in years due to the pandemic.

Much of this growth has been driven by increased travel spending, particularly when it comes to rewards points redemption, which was halted for most of last year.

Head of Credit Cards and Loans at Citi, Choong Yu Lum, said rewards redemption on Citi cards rose 6% in April.

“Resurging after a year’s lull are travel and airline categories: general travel and experience redemption was up 10%, and Velocity points up 14%,” Mr Lum said.

“It is another strong indication that our Trans-Tasman bubble is working when it comes to stimulating spend in tourism.

“Additionally, we expect that increased domestic travel has contributed to this spike.

“The announcement of the New Zealand travel bubble early in the month has propelled airline spend…and (we) anticipate this will increase over the next few months as more families are reunited with their loved ones from across the Tasman.”

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