Slow growth outlook for credit card market

Credit card issuers should get used to slow growth in their businesses, according to industry participants speaking at yesterday's Cards & Payments conference in Sydney.

Speakers agreed that the days of double digit growth in card spend were not likely to return soon.

Figures released by the Reserve Bank last week show credit and charge card purchases grew by 4.4 per cent in the 12 months to January and total spend (including cash advances) grew by 3.4 per cent.

Credit continues to lose ground to debit. Debit share of card payments increased from 34.7 per cent in January last year to 36.6 per cent 12 months later. Credit share fell from 52.8 to 52 per cent over the same period and charge card share fell from 12.5 to 11.4 per cent.

GE Capital Australia chief executive Skander Malcolm said market dynamics had been affected by regulation making credit a less attractive option for consumers; aggressive marketing of scheme debit; and tighter credit conditions caused by the onset of the financial crisis.

Malcolm said: "Conditions are easing. Growth will come back to the credit market but it will be slower than in the past."

CommSec managing director Stephen Karpin said the industry had caused some of its own problems by promoting low rate cards, which he said was an unsustainable business model.  

Karpin said: "The development of the low rate card segment was driven by regulatory change and by a benign credit environment.  But it resulted in higher cost of customer acquisition and higher credit losses."

The head of consumer products at Aussie, Greg Johnson, said Aussie realigned the pricing of its low rate card over a year ago, after concluding that the pricing was not sustainable.

Johnson said: "There is still value for the customer but it is also sustainable for the business.

"The other problem with having only a low rate card is that it makes you a one trick pony. Once your cardholders pay off their balances, they don't need the card any more. You don't have anything else to offer them."

The head of consumer finance at Macquarie Bank, Alan Matchet, said the industry was still coming to terms with the downward interchange environment. Issuers had to develop loyalty programs without relying on the interchange revenue.

Johnson agreed with GE's Malcom that growth would be slow in coming years.

CommSec general manager for products and development, Elicia Kunovski, sounded a warning for credit issuers when she said the use of debit would continue to grow as consumers came to understand it better.

CommSec launched a cash account in 2008 and issued a MasterCard debit card with the account. Kunovski said consumer awareness of scheme debit was low.

CommSec is working with MasterCard on education programs to teach consumers about the additional functions of scheme debit, such as online purchasing.