New borrower behaviours are killing off credit card accounts

More Australians are ditching their credit cards to switch to new-age schemes or improve their financial position. HAVE YOU CUT UP YOUR CARDS? VOTE IN READER POLL

Exclusive: Consumers are cutting up their credit cards in record numbers as stricter lending rules and the rise of new buy-now-pay-later schemes changes borrowers’ behaviour.

The number of personal credit card accounts held nationally has dropped by 810,000 since the start of 2018 to 14.6 million, according to Reserve Bank of Australia figures.

And a new report by data group illion says a city-country divide has emerged, with card numbers spiking in regional areas in recent months.

Payment schemes such Afterpay and Zip Pay have boomed, growing customer numbers five-fold between 2015-16 and 2017-18 to two million, according to government figures, and 60 per cent of their users are aged between 18 and 34.

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illion CEO Simon Bligh said this explosive new growth sector of the market was favoured by Millennials, who found it “fatiguing” to apply for credit cards at a time when banks were making it harder to get all types of loans.

“It’s supremely easy to get buy-now-pay-later credit,” he said.

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Online shopping is increasing the use of credit cards among people who still own them. Picture: iStock

Customers of these schemes pay off purchases in instalments after receiving goods. They pay no interest but there are penalties for late and missed payments.

Mr Bligh said the decline of credit card accounts was expected to continue for the next 12 months.

illion’s new Credit Card Nation report says Baby Boomers aged in their 50s own an average one card each, while there is only one card for every five adults aged under 25.

Consumer finance specialist Lisa Montgomery said buy-now-pay-later schemes were “the new age of buying things without paying for them, particularly in that younger demographic where we used to see a high uptake of credit cards”.

“That 25 to 35 age bracket doesn’t like paying interest,” she said.

“And in the older demographics we are seeing that people are removing unnecessary credit cards from their wallets. People are embracing debit cards and using their own funds.”

illion, which holds data on 95 per cent of all Australian credit card accounts, also found that people with credit cards were using them more often.

Mr Bligh said this reflected the “general shift in spending from physical to virtual” as shopping moved online, and the ease of tap-and-go payments.

The report found credit card accounts in regional Australia had increased by 180,000 since October.

“Many parts of rural Australia have faced extenuating circumstances with their livelihoods heavy impacted by the drought,” Mr Bligh said. “Farmers have needed support with their cash flow and have turned to credit cards.”

It also found:

• More than 35,000 Australians have five or more credit cards.

• The “mortgage generation” of Australians aged 35 to 50 are the most likely to be chronically behind in their card payments.

• Almost $12 billion of credit card debt is sitting with 1.4 million high-risk consumers who are more likely to default.

@keanemoney

Originally published as New borrower behaviours are killing off credit card accounts