Australia's credit card market used to be dominated by just a few big players and resulted in high fees, high interest rates and poor rewards. Recent years has seen a huge rise in competition in the Aussie credit card market from both smaller local competitors and from overseas entrants such as Virgin, Citibank and HSBC.
The Aussie credit card market has seen a lot of growth over the last three years. The major banks have been aggressive in attracting users to aussie cards. This has been achieved to a large extent by rewards schemes whose variety and creativity find no equals in other countries.
Growth in the market
Nowhere is the phenomenal growth more apparent than in the number of Australian cards.
Figures from the Reserve Bank of Australia (RBA) show that at the end of 2005, there were 12.47 million card accounts were held in Australia, however, by the end of October 2008 (the latest month for which figures available at the time of writing), this number had grown to 14.27 million. This is an increase of 14.4% in nearly three years.
The growth in total debt incurred through aussie cards is even more striking. In December 2005, total card debt stood at $34.23 billion (or an average of $2,744 debt per card). By October 2008, total debt had ballooned to a staggering $44.73 billion an average of $3,135 debt per card. Total debt grew by nearly 31%, whilst the average debt per card increased by 14.2% during the three-year period.
Credit issuers have also made more credit available. The average credit limit per card account was $7,361 in December 2005 and this has risen almost 17% to $8,588 as of October 2008. During the 10-month period from year-end 2007 to October 2008 alone, average credit limit has risen 4.5%.
Major market players
There has also been a sea change in the popularity of certain types of cards. Australia's first major credit card brand, Bankcard, was launched in 1974 but it never recovered from the onslaught of Visa and MasterCard and folded up in 2006.
Visa has been the dominant credit card brand in Australia. But market trends in the last two years have shifted and many Australians now believe the best credit cards are those with low-interest rate features and/or offer rewards programs, and the market leader is facing stiff competition.
The grwoth of the low interest rate card market has also benefitied rival Mastercard. In addition, consumer sentiment appears to favour American Express as having the best credit card rewards program. To counter the competition, Visa has aggressively promoted prepaid credit cards and schemed debit cards.
Lingering concerns
In a recent interview, the Prime Minister expressed astonishment at the diversity of products around five to six hundred different cards are on offer. The more important thing is the variation on interest rates from as low as 8 per cent to as high as 28 per cent.
The spread of rates are, in the Prime Minister's words, "extraordinary" and should be examined. While home loans have seen rates slashed as a result of the recent wave of RBA rate cuts, interest rates for purchases or cash advances on credit cards have failed to keep up with the cuts as banks seek to keep profits high. Retail associations have called on the banks to pass on more of the rate cuts to cardholders to help stimulate the economy and retail sector.
As an Australian consumer then it's important to know that there is a huge range of chouce available. The take-home message at this time is that it is extremely important to shop around for the best credit card offers.
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