Credit cards perks and pitfalls report: Past, present and future

In the wallet of the average Aussie you might come across a few essentials like a debit card, a drivers license, some cash and of course the handy credit card. 

According to the Reserve Bank of Australia (RBA), there is now a credit card for every adult Australian, with the total number hitting an impressive 16 million. But while it might seem like they’ve been around for a long while, credit cards only made their way to Aussie shores in 1974, making them just 46 years old. 

And within those 46 years plastic has taken on many forms, from low rate to balance transfers or travel and rewards cards. Younger Aussies are even choosing to adopt emerging platforms, like Buy Now, Pay Later (BNPL) as a preferred ‘line of credit’. So could credit cards become a thing of the past? This report answers that and more.

What does the average credit card user look like?

To get an understanding of how credit cards fit in with the everyday Aussie’s lifestyle, let’s start with the basics. 

The average credit card debt in November 2019 was $3,257.82, with the average credit limit clocking in at $9,833.34, as per the Australian Bureau of Statistics (ABS).

Jumping into the Mozo database, the average credit card interest rate sits at 16.88%, while data research provider Illion says the average credit card transaction in 2018 was $148. It also found that men hold 56% of all credit cards in Australia.

Australia’s long history with debt

For many, a credit card can provide more spending flexibility, the opportunity to start a credit history or act as a lifeline during unforeseen circumstances. But unfortunately, misusing this line of credit can also be the source of a massive financial headache.

Two years ago, the Australian Securities and Investments Commission (ASIC) revealed that as a nation we’ve racked up $45 billion worth of credit card debt. And during the 2016/17 financial year we were charged an eye-watering $1.5 billion in fees, such as annual fees and late payment fees. 

“These figures show that Aussies have a tendency to spend more than they earn and are unfortunately paying the price in more ways than one,” said Mozo Director, Kirsty Lamont. “Not only does missing payment mean being stung in unnecessary fees, but it also takes a toll on your credit health.”

Millennials and credit: Monkey see, monkey do?

As younger Aussies step into financial independence and begin thinking about their own financial goals, it’s safe to assume that purchasing property, international travel or settling down with a family are some of the most common ones. 

But are millennials following in the footsteps of their parents by picking up debt along the way? 

Yes and no. 

In 2019, the Illion Credit Card Nation report detailed that millennials under 30 are twice as likely as their parents to fall more than two months behind on their credit card payments.

At the same time, the report also found that millennials make up only 10% of the credit card market, suggesting an anxiety about carrying debt.

“Despite the bad rep millennials often receive, they have proven to be quite savvy when it comes to managing their finances. A recent study found that millennials are 30% more likely to save more than their parents, while an impressive 80% stick to a budget,” said Lamont. 

“And with the rise of neobanks and alternative payment methods, like BNPL on their side, millennials are confidently stepping into the new age of personal finance.”

But what do these BNPL services look like?

Buy Now, Pay Later: Plastic’s interest-free cousin

Afterpay, Zip Pay, Humm, Klarna - chances are you’ve heard of at least one of these. 

Mozo research in 2019 found that 30% of adults have a BNPL account, but also more than half have stopped using their credit card because of BNPL. 

These platforms allow users to make purchases and pay them off interest-free in either weekly, fortnightly or monthly installments. BNPL giant, Afterpay was one of the first to launch in Australia in 2015. 

“BNPL has changed the face of the way we pay for goods with more than 25% of users cancelling their credit card and a further 23% saying they no longer use it,” says Lamont. 

Millennials dominate the BNPL market and represent 53% of users. 

But just like the traditional credit card, misusing BNPL services can lead to financial disaster, from incurring late payment fees to a mark on your credit history.

Will rewards credit cards get the chop?

With BNPL promising interest free options and payment flexibility, is the humble credit card losing its value among younger Aussies? 

One type of card that has copped criticism in the past is the rewards credit card. While they allow Aussies to earn points in exchange for things like gift cards or free flights, the question about their value has arisen. 

Mozo research shows that rewards credit cards are on the decline, as 66% of Aussies think they are no longer worth their return. 

And they could be right, as Mozo found that the average rewards card’s net value in 2019 was a mere $79: that figure now sits at an all-time low of $34 for 2020. 

Plus, with an annual spend of $20,000, opting for a gift card return would leave the average cardholder out of pocket by $94, or netting just $34 at best. 

“If you’re opting for a gift card return, three times out of four you’re losing money because your annual fee actually outstrips the reward return,” said Lamont.

Can credit card providers keep up with BNPL?

Between BNPL services growing by the day and savvy millennials turning away from debt, could credit cards become obsolete? 

Head of banking and payments intelligence at J.D. Power Australia, Bronwyn Gill says not just yet. 

“I don’t see credit cards becoming a thing of the past anytime soon, as they are still highly convenient. The top three reasons a millennial takes out a credit card is for a balance transfer, emergencies or unexpected purchases and cash advances,” she said. 

And it seems like credit card providers aren’t too worried about falling behind either, as banks like Westpac, Commbank and ING recently rolled out their own versions of BNPL. 

More recently credit card giant, American Express launched Plan It, a BNPL alternative for big ticket purchases. 

However, Gill suggested that in order for credit card issuers to remain sharp in the market, they’ll need to up their rewards game. 

“Rewards are one the key reasons a millennial gets a credit card, so I think card providers will need to start improving their rewards range to benefit, attract and keep millennials as their customers,” she said.

If you’d like a more comprehensive look at how Buy Now, Pay Later fits into the everyday Aussie’s lifestyle, check out our 2020 BNPL report!

Or if you’d like to check out some of the latest credit card deals, head on over to our credit card comparison tool.