Total credit card and debit card transaction volume is increasing. As the Australian economy continues to grow out of recessionary depths better figures are posted every month. We take a look at recent consumer spending behavior and what it means for the credit industry.
Australians have felt the pinch of the global financial crisis like every other nation. The contraction in the economy was coupled with lack of liquidity in the credit industry. As credit became harder to get hold of consumer spending behavior shifted dramatically. Many credit card holders began to look for other ways to finance or service their debt. Some went off in search of better interest and balance transfer deals, while others switched over to debit card transactions in a bid to rein in debt.
But the Australian economy has been growing at a steady pace for a while now. It takes at least two quarters of modest growth for it to be “officially” declared by central banks as out of recession, but early signs are quite positive for the economy. Even the recent interest rate hikes did little to dampen the growth rate. For all intents and purposes the Australian economy is out of the woods and heading for a strong recovery.
Consumer spending behavior usually reflects changes in economic outlook, and can at times be a leading indicator of consumer confidence. Recent RBA figures show significant growth in spending, both through credit and cash transactions. The average value of credit card transactions increased by 6%, and the year-on-year increase in average balances is close to 3.3%, while debit card transactions grew at an even faster rate of 30% when compared to last year figures.
Credit repayments did take a hit last year because of the recessionary effects, and still show signs of struggling. Last February the total repayment amount was about $17.7 billion, 5% less than January figures of $18 billion. The interest rate jumps might have contributed to debt repayments, but whatever be the cause, the average consumer has every reason to be wary of credit card debt.
This might explain the very high levels of debit card usage. Faced with tightening credit conditions and a slowing economy, many Australians have switched their regular spending to debit cards instead of credit cards. Now that economic conditions are improving, consumer spending behavior has changed to reflect greater spending, with a larger proportion of it coming from the consumer’s own pocket instead of being financed though credit. As the economy continues to improve and credit conditions become more relaxed we might see a reversion to increased credit card debt. Or this might just be a prelude to what is essentially a paradigm shift in household spending patterns.
