In response to the concerns recently raised by governments and consumer advocacy groups about the level of household debt in Australia, resulting in consumers becoming over-committed, Visa International, with support from the four major Australian banks, commissioned KPMG Consulting and its global research arm the Nolan Norton Institute, to research credit card use in Australia.
The aim of the project is to gather information on the use of credit cards, so that policy makers and the community can make informed assessments about the social and economic impact of credit in Australia.
There is a shortage of detailed data and objective analysis of credit card usage in Australia. To date, much of the objective information required for informed discussion on credit card use has not been collated or published. It has been the commercial and confidential property of banks and other credit providers.
Through the co-ordination of Visa International, the banks have agreed to make their data available for this research, so that a more complete picture of credit card use can be made publicly available.
This report represents a comprehensive and detailed addition to information currently available on credit card usage in Australia.
Concurrently with this research, the Reserve Bank of Australia (RBA) is reviewing the cost of the credit card system, including the question of interchange fees. This report does not address the issues being examined by the RBA.
However, the factual information herein can form the basis for discussions about policies which will better meet the concerns of governments and consumer advocates.
CONTENTS
1 Introduction
- 1.1 Community concerns
1.2 Methodology
1.3 This report
1.4 Acknowledgements
1.5 Disclaimer
2 Key Findings
3 Consumer debt in Australia: an overview
- 3.1 Australian household debt
- 3.1.1 Comparisons with other Western countries
3.1.2 The impact of housing finance
3.1.3 The impact of credit card debt
3.2 Australian household wealth
4 Credit card debt in Australia: an overview
- 4.1 Credit cards usage in Australia
- 4.1.1 The number of credit cards in circulation
4.1.2 Frequency of use
4.1.3 Changes in preferred payment methods
4.1.4 The impact of credit card payment channels
4.1.5 Debit vs credit transactions
4.2 Credit cards are used primarily for short-term debt
- 4.2.1 Interest-free period cards
4.2.2 Repayment of advances
4.2.3 The rate of debt turnover
4.2.4 Credit card debt rotation
4.2.5 Monthly minimum payment approaches
4.3 Summary of consumer debt in Australia
5 The level of credit card debt – over-commitment and financial hardship
- 5.1 Financial hardship
- 5.1.1 Some definitions
5.2 Default
- 5.2.1 The proportion of default debt
5.2.2 The charge-off rate on credit cards
5.3 Customers making minimum monthly payments
- 5.3.1 Consistent payment of the minimum monthly payment required
5.4 Number of credit card holders facing potential hardship
5.5 Trends in bankruptcies
5.6 Proportion of credit limit used
6 Approaches banks use in issuing and managing credit
- 6.1 Legal obligations to issue credit responsibly
- 6.1.1 Uniform Consumer Credit Code
6.1.2 Code of Banking Practice
6.2 Commercial pressures on banks to issue credit responsibly
6.3 The credit card application and assessment process
- 6.3.1 Changes over recent years
6.3.2 The credit card application form
6.3.3 Checking of personal details
6.3.4 Application scoring
6.3.5 Credit bureau checks
6.3.6 Capacity assessment
6.4 Subsequent credit card limit increases
- 6.4.1 Behavioural scoring
6.4.2 The consumer’s role in unsolicited increases
6.4.3 Default rates for unsolicited credit limit increase offers
6.5 The role of staff incentives
6.6 Anomalies in the credit issuing process
6.7 Benefits of modern scoring processes
6.8 Continued investment in scoring techniques
6.9 Repayment rates also assist in credit management
6.10 Unforeseen changes in circumstances are key reasons for customers getting into difficulty
6.11 Collections
7 The marketing of credit cards
- 7.1 The range of credit cards available
7.2 Reward program credit cards
- 7.2.1 The use of reward program cards
7.2.2 Factors influencing the choice of reward program cards
7.3 Personal loans and credit cards
- 7.3.1 Level of consumer protection
7.3.2 Competitiveness
7.3.3 Diversity of choice
8 Credit cards and the macro economy
- 8.1 Introduction
8.2 Increased rate of economic growth
- 8.2.1 Providing a source of finance to consumers
8.2.2 A high-level quantitative assessment of the benefits
8.3 National savings
- 8.3.1 Impact of credit card debt on national savings
8.3.2 Households and debt
8.4 Inflationary pressures
9 Government policies to protect consumers
- 9.1 Introduction
9.2 The rationale for this research
9.3 A common terminology
9.4 Ramifications of potential policy interventions
- 9.4.1 Mandatory minimum assessment criteria
9.4.2 Banning unsolicited credit card offers
9.4.3 Uniform credit application forms and processes
9.4.4 Mandatory external auditing
9.5 Targeted policies
9.6 Potential unintended consequences of new policies – less regulated credit providers
9.7 Collaborative policy development
Appendix A – Comparison of personal loan and credit card application forms
Appendix B – Credit scoring
Appendix C – Information available through credit bureaux
Download
PDF Ebook Credit Cards In Australia A Research Report July2001
