Possible target price of $15-20, page-1678

in todays AFR . interesting numbers and commentary from Citi , 5th largest bankcard in Oz

Buy now, pay later providers offer customers ‘‘a fantastic experience’’ and regulators have created structural problems for credit cards, says the boss of Citi’s consumer bank – the fifthlargest credit card issuer in the country.Still, Alan Machet says it’s too early to call the death of credit cards, which are often criticised for their high costs and now face tighter regulation.Citi, which has a $4.5 billion credit card book, the largest after the big four banks, recorded a steep 10 per cent decline in balances between April and June, after a 3 per cent contraction in the first quarter.While much of the reduction reflects lower consumer spending during the COVID-19 lockdown, Mr Machet acknowledges there are big shifts going on in the card market requiring incumbent issuers to adapt.‘‘Ten per cent is enormous. Balances usually only move up or down one or two per cent a year,’’ he said. ‘‘There absolutely is a structural issue.’’Reserve Bank data released in May showed a 7 per cent decline in the number of credit card accounts in Australia over the year to March. April figures showed a 33 per cent decline in credit card spending compared to a 10 per cent fall in spending on debit cards.The Australian Securities and Investments Commission has raised concerns about the high cost of credit card and insists banks conduct stringent eligibility tests on new customers – while buy now, pay later operators such as Afterpay are able to offer short-term credit outside obligations set down in the national credit act.At Citi, credit card spending was down 40 per cent in April compared to April last year, and 25 per cent in May, while June almost returned to the same level as June last year.While the coronavirus crisis cut spending options for many customers, Mr Machet said Citi’s data also shows customers are applying for credit cards at a later stage in life.‘‘People are getting a credit card when they get a mortgage and need access to revolving credit. It used to be a rite of passage when you got your first job. But under responsible lending rules that is not as easy to do today. There is a regulatory part that makes it harder for people to access.’’Afterpay and Zip, he says, are formidable competitors in terms of the onboarding experience, but this is being assisted by the small number of formal checks required.‘‘If you are 25 years old and on $50,000, unless you are pristine, you probably won’t get approval for a credit card. But you will definitely be approved for buy now, pay later,’’ he said.Despite the pressures, credit cards are ‘‘something we want to grow, and we still think have a lot of relevance’’.‘‘We have done research showing a meaningful proportion of buy now, pay later customers have plans to apply for a credit card in the medium term. But we need to offer more flexibility to customers. The credit card is still a good way to get short-term access to cash. But there is a new competitor on the block doing a good job.’’The massive popularity of buy now, pay later options is forcing credit card issuers to change with the times. Citi is partnering with online retailer Kogan to provide instalment plans at point of sale in a model that is similar to the major buy now, pay later providers.Citi – which is the white-label card provider for AusWide Bank, Bank of Queensland, Coles, Kogan, IMB Bank, Qantas Money, Suncorp Bank and Virgin Money Australia – has also introduced ‘‘fixed instalments’’. This allows customers to make repayments in parts, at a lower interest rate than revolving the balance. The option has grown by five times in the past two years and Citi expects it to double in the next two.Citi also provided The Australian Financial Review with details on its threemonth check-in process with unsecured loan customers. The bank says less than one in 10 of those offered repayment holidays have raised concerns about restarting payments after September, while half have elected to restart normal repayments. Meanwhile, 40 per cent have asked for their repayment holidays to continue for another three months.Mr Machet said these ratios are likely to be similar for the $8.1 billion mortgage book, where – like the big four banks – around 10 per cent of customers requested to halt repayments as the coronavirus struck. ‘‘We are seeing a very large proportion of customers come off deferrals at the three-month check in,’’ he said.And after open banking was switched on this week, Mr Machet said Citi has plans to get accredited as a recipient of big bank data.