Debit trumps credit cards as consumers get nervous Richard Gluyas February 18, 2006 SHOPPERS preferred debit to credit for the first time last year, as Reserve Bank reforms began to bite and concern over the direction of interest rates and the economy heightened.
The percentage of purchase transactions on debit cards, which had been rising steadily for several years, lifted to 50.1 per cent for the year ending December 2005, eclipsing credit and charge cards at 49.9 per cent. Michael Ebstein of MWE Consulting, which does a monthly analysis of the card industry, said the Reserve Bank's 2003 reforms had made credit cards more expensive.
Reward systems, such as frequent flyer points, had become less attractive.
"People also tend to use less debt when there is uncertainty," he said. "We are moving from a strong economy with high growth, high employment and low interest rates to a period of increased uncertainty, with interest rates and unemployment expected to increase."
While debit was preferred when it came to the volume of transactions, it remained well behind credit and charge cards in the dollar value of purchases.
The value of debit purchases last year was only 31.5 per cent of total card purchases, with credit accounting for 56.4 per cent and charge 21.1 per cent. This reflected consumers putting larger purchases on their credit cards. The average debit purchase in 2005 was only $60.69 compared to $132.81 for credit or charge.
Mr Ebstein said the month of December had proved to be a "fizzer", with the total card spend increasing by only 0.1 per cent to $16.19 billion from the previous December.
Also, the month of December was just 5.9 per cent ahead of November - about one-third of the seasonal increase experienced in the past three years. This was again a reflection of the prevailing economic uncertainty.
The recent proliferation of credit card launches saw the number of card accounts leap ahead 7.2 per cent in 2005 - the highest growth rate in five years.
But this did not feed through to similar growth in total card spending, which rose a respectable 7.7 per cent last year but was well below the 8.7 gain in 2004 and a meteoric 11.9 per cent the previous year.
"The (purchasing) activity per card is actually falling," Mr Ebstein said.
He said the 0.5 per cent growth in spending per card account in 2005 was one-eleventh of the equivalent rate in 2004.
The trend in Australia towards more debit card purchases was also evident offshore.
In Britain, 67 per cent of purchase transactions are on debit. In the past three years, debit purchase transactions increased 37 per cent in Britain compared to 11 per cent for credit.
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