Debit Card Use On The Rise

New Zealanders are swapping credit cards for debits cards, according to data in the latest ANZ Financial Wellbeing Indicator.

The percentage of New Zealanders using a debit card increased from 34.9% in December 2016 to 39.5% in June 2020, while use of credit cards dropped from 58.4% to 55.3% over the same period.

Download November's ANZ Financial Wellbeing Indicator 

While New Zealanders may have cooled somewhat on the idea of credit cards, the report says ‘buy-now, pay-later’ schemes, such as Afterpay, are becoming popular.

That is especially the case among younger people.

“The indicator tells us the demand for credit is largely unchanged. But the way we are doing it is changing,” says Ben Kelleher, ANZ NZ Managing Director, Personal Banking.

The percentage of New Zealanders using a debit card increased from 34.9% in December 2016 to 39.5% in June 2020.

The report found that since 2016 the percentage of consumers who believe that credit is an enabler to buy the things they want has decreased only marginally from 47.4% in the 12 months to December 2016, to 47.2% in the 12 months to June 2020.

This may even be masking the extent of comfort that New Zealanders have to spend money they don’t currently have, as some people don’t regard using a ‘buy-now, pay-later’ scheme as a form of credit.

CARD REPAYMENTS

ANZ’s internal customer data shows that when it comes to repayments an increasing number of ANZ credit cardholders are paying off their balances in full each month.

It is a trend that began with the Global Financial Crisis and has accelerated with COVID-19. Since the start of the COVID-19 pandemic there has been a 12% increase in the number of customers who pay off their card in full each month.

”Credit Cards can be useful to manage cash flow for short periods, and for customers who want flexibility around their repayments,” Mr Kelleher says.

“But there are other options for borrowers, and it is important that people choose a product that is right for their circumstances.

Personal loans can be helpful for customers where a structured debt repayment would help them – particularly people making large purchases or wanting to consolidate debt.”

Credit cards that offer customers other benefits – like travel insurance, or cashback on their spending – generally carry a higher interest rate.

“These cards are more appropriate for customers who are likely to be able to pay off their card every month,” Mr Kelleher says.

People often wonder why credit card interest rates are higher than mortgage or deposit rates.

The higher rates reflect the fact credit cards offer relatively small lines of unsecured revolving credit. When a loan is unsecured it means the loan is not secured against any of the borrower’s assets.

This typically means the amount borrowed will be less and the interest rate will be higher.

In contrast a secured loan, such as a mortgage, will be secured against some or all of the borrower’s assets. If the borrower fails to make repayments the lender may get some or all of those assets to cover the outstanding loan amount.

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TWO STEPS TOWARDS FINANCIAL WELLBEING

Improving the financial wellbeing of our customers is at the heart of ANZ’s strategy.

Research for ANZ’s Financial Wellbeing Reports has found there are two crucial actions people can take to materially improve their feelings of financial wellbeing – regularly saving and not borrowing to pay day-to-day expenses.

“We know that being able to save even a small amount is one of the biggest factors in people feeling higher levels of financial wellbeing,” Mr Kelleher says.

The November ANZ Financial Wellbeing Report found New Zealanders had an average of $42,417 per capita in savings (in June 2020). Although this figure looks high, it is impacted by people with large amounts of savings.

The median figure is $5,580 a person. That compares to a median figure of $4,810 twelve months earlier.

FINANCIAL WELLBEING

The November Financial Wellbeing report covered the first six months of 2020, as the world grappled with the health and financial impacts of COVID-19.

Perhaps surprisingly, ANZ’s New Zealand Financial Wellbeing Indicator increased slightly, lifting from 62.8 in December 2019 to 63.0 in June 2020.

The Indicator is made up of three components: meeting financial commitments, feeling comfortable and resilience.

Financial wellbeing contributes significantly to someone’s overall health and wellbeing, community connectedness, and economic and social participation.

Financial wellbeing is defined as the extent to which a person is able to meet current commitments comfortably and have the financial resilience to maintain this into the future.