Credit cards declining in use, as young Australians switch to new methods
According to its inaugural credit card report released on Sunday, Australian consumers under the age of 30 hold over half of all buy now, pay later accounts but just 10 per cent of total credit cards.
One reason for this may be that banks are traditionally reluctant to give credit cards to younger consumers, who they view as a “more risky demographic group”. This coincided with new, alternate payment methods.
“With evolving forms of repayments offering consumers more choice in an increasingly fragmented and competitive credit system, Australia is at the tipping point of its credit card cycle,” illion chief executive Simon Bligh said.
As the payments landscape changes, retailers need to consider whether they should offer alternate payment options, if they haven’t already.
“Retailers will need to respond to shifts in how consumers want to purchase and pay off their goods and services over coming years, particularly as younger Australians enter adulthood and constitute a growing and more influential proportion of the spending population,” Bligh said.
While a majority of under 30s still hold a credit card (57 per cent), the long term trend is exponentially changing in the favour of BNPL options.
As the ilion report highlights, however, those under the age of 30 are twice as likely as their parents to fall more than two months behind in credit card payments.
“[This suggests] they have a greater difficulty balancing spending and debt, regardless of their credit limit,” Bligh said.
“Likewise, the likelihood of failing to pay off credit card debt on time increases if consumers have more than one card, and increases again if those cards are with multiple banks.”
According to a recent investigation into the BNPL industry by the Australian Securities and Investments Commission, one in six users of the services had become overdrawn, delayed a bill payment or borrowed additional money to overcome payment obligations.
This stems from the fact that both BNPL and credit cards allow customers to buy something that may be out of their price range, and easily put themselves in a position of becoming unable to meet their repayments.
“The exponential growth in this industry, along with the risks we have identified, means this will be remain an ongoing focus for ASIC,” ASIC commissioner Danielle Press said.
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