Australian Payment Cards: Review of 2011 and Outlook to 2013

OVERVIEW

• Catalyst

• Summary

EXECUTIVE SUMMARY

• The Australian economy: global uncertainty is driving stagnation
◦ Consumer demand for all forms of credit continues to weaken, especially outside the housing sector
◦ Two-speed economy causes uneven growth across different market segments

• Australia's payment card market in 2011: low demand, high usage
◦ In 2011, demand for new cards was the slowest in 10 years
◦ Despite uncertain economic times, transaction values have grown strongly in the past five years
◦ The use of ATMs has reached a stagnation point, signifying a step toward cashless payments

• Balancing the benefits for consumers and the payment industry
◦ RBA acts on excessive surcharging to reflect the true cost of acceptance
◦ Implementation of new consumer credit protection laws will provide transparency at some cost

• 2012: a turning point for the Australian cards market
◦ Future growth will rely on systemic growth, as new demand will remain low
◦ Credit card annual transaction values will grow by 3.7% in 2012
◦ Double-digit growth is still expected for debit card transactions
◦ Consumers will use less cash, triggering a turning point for ATM transactions
THE AUSTRALIAN ECONOMY: GLOBAL UNCERTAINTY IS DRIVING STAGNATION

• The economic outlook will remain modest due to a strong dependency on the global economy

• Uncertainty weakened the demand for credit in 2011
◦ The unemployment rate and GDP growth did not provide a clear direction for Australia in 2011
◦ Consumer demand for all forms of credit continues to weaken, especially outside the housing sector

• Two-speed economy causes uneven growth across different market segments
◦ Overall, income growth was relatively unaffected during and following the global financial crisis
◦ Australia's two-speed economy is reflected in the state of the retail sector
AUSTRALIA'S PAYMENT CARDS MARKET 2011: LOW DEMAND, HIGH USAGE

• 2011: changes in consumer behavior have shifted the Australian payment landscape
◦ Low confidence has pushed consumers to consolidate their accounts
◦ However, the use of cards at the POS has increased rapidly
◦ The use of ATMs has reached a stagnation point, signifying a step toward cashless payments

• Demand for new payment cards is down, but usage is up
◦ In 2011, demand for new cards was the slowest in 10 years
◦ Despite uncertain economic times, transaction values have grown strongly in the past five years

• Average transaction value has decreased, but not for charge cards
◦ There is significant room for payment cards to grow in low value retail payments

• Cautious consumers are increasing their repayment levels
◦ Increased repayments put extra pressure on the growth of outstanding balance
◦ Revolving credit card debt grew at the slowest pace in 10 years in 2011
◦ Despite economic uncertainty, credit card delinquencies remain within a manageable level
BALANCING THE BENEFITS FOR CONSUMERS AND THE PAYMENT INDUSTRY

• RBA acts on excessive surcharging to reflect the true cost of acceptance
◦ RBA's preferred option: loosely set the limit surcharges based on the cost of acceptance

• Regulatory landscape 2012: focus on protecting consumers
◦ Implementation of new consumer credit protection laws will provide transparency at some cost
2012: A TURNING POINT FOR THE AUSTRALIAN CARDS MARKET

• Future growth will rely on systemic growth, as new demand will remain low
◦ Consumers will remain cautious in 2012, followed by stronger consumer sentiment in 2013
◦ Low value transactions will drive further support to the growth of the Australian payment cards market

• After a weak performance in 2011, the credit card market is expected grow strongly to 2013
◦ Credit card annual transaction values will grow by 3.7% in 2012
◦ The credit card market is expected to hold a total of A$53.3bn in personal debt by 2013

• Debit cards will continue to dominate the growth of Australian payment cards
◦ Double-digit growth is still expected for debit card transactions
◦ Consumers will use less cash, triggering a turning point for ATM transactions
APPENDIX

• Supplementary data

• Definitions
◦ (Untitled sub-section)

• Methodology
◦ Primary research
◦ Secondary research
◦ Forecast methodology

• Further reading

• Ask the analyst

• Disclaimer

List of Tables

• Table: Credit card 90+ day delinquencies, 2011
• Table: Historic and forecast market drivers under neutral, optimistic, and pessimistic scenarios, 2007–13 (1 of 2)
• Table: Historic and forecast market drivers under neutral, optimistic, and pessimistic scenarios, 2007–13 (2 of 2)
• Table: Historic and forecast credit card market under a neutral scenario, 2010–13f
• Table: Historic and forecast debit card market under a neutral scenario, 2010–13f
• Table: GDP quarterly growth and unemployment rate, 2005–11
• Table: Personal lending growth in Australia, 2006–11
• Table: Annual growth of personal income based on the average gross weekly earnings for full-time adults, 2006–11
• Table: Retail trade annual growth, 2000–11
• Table: Retail trade annual growth, by category and by state, 2011

List of Figures

• Figure: New payment tools will move consumers away from using ATMs
• Figure: Credit card annual transaction values will grow by 3.7% in 2012
• Figure: Australia narrowly avoided recession during the global financial crisis
• Figure: Volatility in the Australian economy is reflected in both GDP growth and the unemployment rate
• Figure: Personal lending is still growing, predominantly driven by the housing sector
• Figure: Income growth remained unaffected during and following the recent global financial crisis
• Figure: Retail trade slowed in 2011 as consumers avoided discretionary spending
• Figure: Overall, there has been a drop in the number of accounts across Australian payment cards
• Figure: Credit cards were the only payment card sector that experienced positive growth in 2011
• Figure: Both the number and value of payment card transactions at the POS have grown substantially during 2006–11
• Figure: Value per POS transaction has declined recently, while both frequency of use and turnover per card have increased
• Figure: New payment tools will move consumers away from using ATMs
• Figure: The negative growth in debit cards is responsible for the decline in the overall payment card market
• Figure: Credit cards represent the lowest growth segment in payment cards by transaction value in 2011
• Figure: Average value per transaction at the POS has been declining, except for charge cards
• Figure: Cash still dominates the low value POS payments sector
• Figure: Outstanding balances on pay later cards increased by A$1.1bn in 2011
• Figure: Credit card revolving debt grew at the slowest pace over the past 10 years in 2011
• Figure: A draft example of the key facts sheet for credit cards
• Figure: Credit card annual transaction values will grow by 3.7% in 2012
• Figure: The Australian credit card market will reach A$55.3bn of personal debt by 2013
• Figure: Both the number and the value of ATM transactions are expected to experience a little growth in the coming years