Credit Card Conundrum

Australia’s decade and half decline continues unabated!

Once upon a time Australia was a Top 10 credit card market globally and credit cards made up 12% of unsecured lending.

The RBA figures for February, released last week paint an entirely different picture with Australia now dropping out of the Top 30 globally, even though it’s the 12th largest economy.

Banks and card Issuers have managed to engineer one the greatest failures in modern retail banking - losing 26.5% of their customers, $88.6 billion in lost sales and losing 82% market share in unsecured lending.

The major banks say they preferred to concentrate on mortgages, which are secured, while other card issuers like Latitude and Flexi/Humm have no such excuse. 

KEY FACTS

In 2008 18.1 million consumer credit and charge cards card spent $189 billion or $10.441 per card.

In 2021 16.3 million consumer credit and charge cards spent $240.9 billion or $14,779 per card or 2.7% CAGR.

DECLINE DATES BACK TO 2008

In the decade leading up to 2008 credit/charge card spend growth was double digit and card numbers increased by 6 million to 18.1 million.

From 2008 credit card growth fell into a hole and has never recovered – 2009 spend was 1.9% above the prior year and this trend has continued.

Australian’s attitude to unsecured debt changed during the ‘GFC’ and concerns about indebtedness grew.

This is reflected in household debt with Australia ranking third globally –

DEBIT CARDS START MOVING

Consumers changed spending patterns, moving to debit cards and cash starting in 2008/9.

The banks and other card Issuers ignored all the key warning signs and did not move with consumers. Some might say ‘asleep at the wheel’ and they are still in the same state over a decade later.

In 2002 the earliest RBA stats – 26.2 million debit cards spent $64.1 billion annually or $2442 per card.

By 2008 debit cards had increased to 35.3 million with spend doubling to $121.5 billion or $3441 spend per card a CAGR of 5.9%, which was only 65% of credit card spend.

ATM use also accelerated from $66.3 billion withdrawals annually in 1998 to $151.5 billion in 2008 or 8.65% CAGR growth.

CREDIT CARDS PEAK AND DECLINE

The strategic errors by banks and issuers were made in 2009-12 when red lights were flashing but no one took any notice.

Critically the key revolving number peaked in April 2012 at $39.5 billion or $1955 per card – today these numbers are down to $20.0 billion and $1220 per card a staggering 49% decline in this key revenue measure i.e. those consumers who borrow and pay interest and provide 75% of revenue.

It is worth noting that this number is incredibly low as is the actual revolve rate and says much about the lack strategic focus and skills within card Issuers in Australia.

Annual credit and charge card spend was $193.7 billion in 2009 with a peak in 2018 of $275.8 billion with a modest CAGR of 3.7%.

Card numbers grew from 17.6 million on January 2008 to peak at 22.32 million in July 2016, since then 26.5% or 5.93 million cards have been lost – this a major collapse in any market.

ATTRITION STUDIES

Studies of consumers who cancel financial products and cards in particular show an 18-24 month gap between a consumer starting to become disillusioned and actually cancelling their product.

If key actions are taken in the first 3 months, 90% of consumers can be ‘saved’.

It is clear Australian card Issuers do not have any attrition management – preferring to spend money on new acquisitions only, despite evidence that ‘saving’ existing customers is 3-5 times cheaper.   

WHILE DEBIT KICKS ON

Debit card annual spend grew at 10.5% CAGR from 2008-2020 or $121.56 billion to $401.96 billion to February 2020, three times faster than credit card spend.

Debit card spend surpassed credit/charge card spend in 2016 and by 2020 average annual spend by 52.4 million debit/prepaid cards was $7667.

Annual ATM withdrawals peaked in 2009 at $157.7 billion with a 1% decline in 2010 – this decline accelerated to a new low of $104.0 billion to February 2021, a CAGR decline of minus 3.71%.

COVID-19 PUTS THE SKIDS UNDER CREDIT CARDS, ATMs and PREPAID

Covid-19 combined with lock-downs and the fear of recession changed spending patterns during 2020, even Visa and Mastercard have been impacted globally - 

In Australia credit and charge cards were badly impacted by changes in attitudes, as were PrePaid cards and ATM’s.

Credit/charge spending declined by 11.8% year on year, with overseas spending collapsing reducing by 64%. This is stark contrast to 2018 which saw a small increase in credit card spend and a 1% decline in 2019.

Over 1.85 million credit and charge cards were cancelled in 2020.

ATMs withdrawals declined by $25 billion or a decline of 19.4% in 2020.

PrePaid cards reached 11.4 million but annual spending collapsed to $3.87 billion a 48% decline in 2020.

Annual debit card spend increased to $401.9 billion an increase of 10.4% in 2020, while debit and PrePaid cards reached a 52.4 million, a new all-time high.

 BNPL HAS NOTHING TO DO WITH ANY OF THIS

There is popular myth that BNPL has killed off credit cards

Spruikers of BNPL like to claim these 7 year old apps have conquered the payment world, causing mass destruction to all other payment types along the way.

The facts dispute this spin and bluster.

In 2021 BNPL has 64 basis points of market share in Australian retail payments after 7 years (see figures below). At this rate it will take 70 years for BNPL to get to 10% market share. That’s hardly a blip let alone all conquering – that might work on the share market but it won’t cut it with payment folks. 

Some of the more absurd claims made are that – ‘most millennials and Gen Z’s only use BNPL’ or that ‘the decline of credit cards is due to BNPL apps which started in 2014’.

This has gone global with shonky stats used to justify such propositions.

Consider these two examples – they look convincing until you look at the facts and data.

 The first question is what do card numbers have to do with revenue and is this a valid comparison? The unequivocal answer is No, they are not related and nor is it valid!

The figures are totalling misleading; the ‘credit card’ numbers are in fact account numbers, a totally different measure and misleading.

Credit/charge cards in 2016 totalled 22 million, as they did in 2017, reducing to 21 million in 2018 – but that doesn’t make such a good chart. The bulk of cancelled cards happened in 2020 with 30% or 1.85 million cancelled – that’s got nothing to do with BNPL.

The BNPL revenues are the most misleading aspect of this chart – Afterpay launched its copycat product in 2014 – Zip launched its BNPL product in 2015 – their combined revenues in 2015 were zilch, 2016 $1.8 million, 2017 $26 million – none of which move this chart.

What IBIS World has done is included the revenues from Certegy BNPL, who have offered interest products and BNPL since 1987, the business was sold by US owners to Flexi/Humm in 2018 – hardly a BNPL app business.

Amazing what nice fancy charts can do!

These two charts totally distort BNPL – which has 5.8 million users in Australia and $9 billion in sales in a market with 69 million cards and $1.35 trillion in payments – go figure!

Number of Consumers to February 2021

Payment type

 Number of Consumers

Debit Card/Pre Paid 52.4 million

Credit/charge - personal 16.3 million

NPP Osko 6.8 million

BNPL* est 5.8 million*

Data – ex RBA 2020  * Company numbers

Payments by Consumers – Full Year to February 2021

Payment type

  Volume in $ billions

NPP/ Osko Digital 562.6

Debit Cards 401.9

Credit/Charge Cards  240.9    

ATM Cash 104.0

Buy Now Pay Later - estimate    9.1

Cash – notes*   8.8        

Cheques* 4.7

Pre-Paid Cards 3.8

TOTAL  $1335.7

Data – ex RBA 2020  * private research Nov 2019