Credit card spending and new applications declining across all ages

Credit card numbers have dropped by 11 per cent in two years. Photo / file

Fewer Kiwis are signing up for credit cards as more people choose to use buy-now, pay-later services.

The number of credit cards on issue dropped by 11 per cent - from 3.68 million to 3.28m between January 2019 and December 2020, according to data from credit bureau Centrix. And spending on them dropped by $1 billion over that timeframe.

In the last year, the number of people using buy-now, pay-later services has risen 23 per cent to 500,000.

Mark Rowley, chief operating officer at Centrix, said the falling use of credit cards was not unique to New Zealand, with the popularity of credit cards declining around the world as consumers embrace alternative payment options such as debit cards, buy-now, pay-later and other forms of in-store credit.

"This is especially the case amongst younger consumers, who are less likely to apply for a credit card, instead relying on debit cards or BNPL for their shopping."

Rowley said a year-on-year comparison found a 20.4 per cent decline in credit cards for Kiwis aged 18 to 24 for the year up to December 2020, and a 12 per cent decline for those aged 25 to 29.

"But it's not just young people who are turning away from credit cards."

It was also seeing a reduction in credit card usage by older generations, with a 5.5 per cent decline for those aged 60 to 64.

Rowley said that while credit card usage was already falling prior to Covid-19, the pandemic had likely accelerated the trend.

"During times of economic uncertainty, people naturally become more worried about their jobs and the ability to pay their bills. This often leads them to reduce their spending and pay down their debt, such as credit cards."

"And we certainly saw this trend in the first half of 2020, as Kiwis paid off hundreds of millions of dollars off their credit cards and reduced the number of cards they held, reducing their exposure to debt."

During December, which is traditionally a high demand period for credit the demand for new credit cards fell by more than a third (34.5 per cent) compared to a year earlier.

"As consumers spend more at the shops, we tend to see an increased demand for new credit cards. This did not happen this year."

He this put down to rising acceptance in the use of buy-now, pay-later schemes.

More people are using buy now pay later later. Photo / file

More than half of 18- to 24-year-olds use BNPL and around a third of 24- to 29-year-olds, and the numbers are growing among the over-30s too.

Buy-now, pay-later sees consumers spread the payments over a number of weeks while getting the product upfront. Users don't pay interest but can pay hefty fees if they miss payments. Retailers also pay a high commission to use the services.

They are not classified as a credit product so don't fall under New Zealand's credit laws. So far personal finance experts have been cautious about their use but some consumers in Australia, where the market is much more developed, have got into trouble using them.

The United Kingdom has just introduced new legislation to make it compulsory for the providers to undertake credit checks on users.

Rowley said New Zealand's buy-now, pay-later industry was in the process of drafting a code of practice.

"I think it is accepted that regulation will come for that industry."

Despite the drop in credit card usage Rowley said he did not see credit cards disappearing anytime soon.

"Credit cards are widely accepted both in New Zealand and around the world, they offer accessible and cheap credit if used properly and often come up with strong loyalty programmes that reward regular users," says Rowley.

"For these reasons, they are unlikely to go the way of cheques anytime soon. In fact, these advantages, as well as ease of use, mean many consumers will continue to have a credit card at their disposal."

A Visa spokesman said at any one time, there were a number of factors driving consumer payments behaviour.

"In times of economic uncertainty, consumers have a propensity to shift spending from money they borrow (via credit cards) to money they have in the bank (accessed via debit cards).

"In addition, consumers often preference credit for travel and travel-related purchases. For these reasons, any decline in credit over the past year may be indicative of current events rather than a long-term trend."

The Visa spokesman said it was also seeing new credit models enter the market and experience rapid adoption by younger consumers, demonstrating continued demand for credit but delivered in different ways.

"As consumers move through life stages, their preferences continue to evolve, with certain demographics still showing strong preference for more traditional credit cards."

"From Visa's perspective, the more choice consumers have, the better the outcome for New Zealand overall. Credit has an important role to play in enabling access to funds for New Zealand consumers, and the continued demand for it is evidenced in the increasingly evolving and innovative landscape."

Ruth Riviere, country manager for Mastercard New Zealand and Pacific Islands, said - accelerated by the Covid-19 pandemic - the way Kiwis think about payments was changing.

"As debit spending continues to see significant growth at a global level, consumers are increasingly interested in new ways to pay, such as buy-now, pay later. Mastercard's technology is helping our banking and retail partners meet the new expectations of consumers.

"Providing consumer choice and a great customer experience is important to Mastercard. As a technology company in the payments space we are continuously investing in both new ways to pay and new ways to keep payments simple, smart and secure, no matter how they're made."