Credit card market in the doldrums

Credit card issuers should look beyond short-term causes, such as rising interest rates and falling equity and property markets, to understand the real reasons for the slowdown in their market, delegates at a credit card conference were told yesterday.

CommSec economist Craig James said the latest cards data showed that outstanding balances were growing at their slowest rate since 1994. But James said the market has been on a plateau for some time.

Speaking at the Australian Banking and Finance consumer credit card summit in Sydney, James said: "The Australia credit card market has matured. The average balance has plateaued and so has the average credit limit. Average monthly transactions have been sitting at 8.5 for some time.

"We seem to have come to a point where people are happy with limits around $10,000 and revolving balance around $3,000.

"The industry faces a real challenge because this is a long-term trend. Card issuers need to think of ways to get people to put more of their regular payments on cards. They need to do more to sell the value of cards as a payment device and an account management tool."

James suggested one reason the market was maturing was the ageing of the population. Older people are less inclined to borrow.

MasterCard Asia-Pacific economic adviser Yuwa Hedrick-Wong agreed that this was a likely cause. "The elderly are the new frontier for card issuers. How are you going to get asset-rich elderly consumers to borrow?

"People over 65 have two-thirds of the household sector assets in Australia but not a lot of income. They should be good customers for card issuers but there needs to be some products and service innovation for that group."

Hedrick-Wong said another group that card issuers needed to crack was what he called "young premium consumers" - people in their twenties, university educated, in well paying jobs and childless. He said these people were self-centred and wanted to enjoy themselves.

"The financial services industry has to help these people juggle their demand for career success and leisure. That is another new frontier."

For many in the industry the market has plateaued because the Reserve Bank's interchange reforms have killed any incentive to invest in products and services, apart from low rate offerings.

Commonwealth Bank general manager of cards Stephen Karpin said: "We have not had the confidence to invest in the system because of the uncertainty of the regulatory regime. The value proposition has to be reinvigorated."