Credit vs. debit in Australia: a brief history

By Vanessa Tripodi

It seems like every Australian has at least one credit card in their wallet or purse, and why not? Who can live without them, right? Right? Actually credit cards have not always had the dominance over Australians' payment patterns that they do now. While history shows Australia has embraced plastic payments for a while now, it is only recently that those payments were made with someone else's money.

After the first debit payment was made in 1988, it only took until 1995 for debit card payments to be more common than cheque payments. In 1990, there were more than 19 million debit cards active in Australia. In 2006, that number reached 27.8 million. Even though their growth has slowed with the market reaching saturation, their number still hit 28 million in 2008. With the introduction of chip-and-PIN technologies, debit cards have maintained their popularity as they are now even more resistant to fraud.

Compared with the 28 million debit cards in circulation, there were 13 million credit cards issued in Australia in 2008 alone. However, this seemingly small amount accounts for 5.8 percent of the increase in household debt in the last decade (up until 2001). Overall, Australians' household debt has doubled. While every Australian does seem to have personal credit card debt, the proportion of credit card debt to total household debt has risen slowly from 2.9 percent to 4.9 percent.

The history of credit card usage in Australia shows a steady increase in popularity across the board with higher usage rates and a shift towards a preference for paying bills via credit card. It has also been found that in 2001, 70 percent of credit card holders paid off their balance in full at least once a year. Of those who didn't, 80 percent paid more than the minimum monthly amount due.

While there is a higher volume of transactions made using debit cards in Australia, the value of credit card transactions is higher on average at $153, compared with $68 for debit cards. Recent credit card history also shows that in the last five years, the value of credit card purchases has grown by more than 40 percent. However, that figure is still beaten by a 20 percent growth in the value of debit cards and EFTPOS transactions in just one year, from 2007 to 2008. In the last five years, overall credit card usage has risen by 27 percent.

Still, the economic recession has reversed recent trends. The Reserve Bank of Australia said earlier this year that Australia's overall credit card balance declined for the first time in 14 years. The average credit card balance is now just more than $3000. Meanwhile, a new report from banking research firm East & Partners says that "debit cards are set to become the most popular form of payment by the end of the year," according to the Herald Sun.

Article by Vanessa Tripodi

Published: July 13, 2009