Posted January 14, 2019 16:25:48

Photo: Consumers have favoured debit card payments over credit cards during the past year. (AAP: David Crosling)

Australia's love affair with the plastic appears to be coming to an end, with a falling number of accounts and the biggest annual decline in credit card lending in 13 years of records.

Figures from bank regulator APRA and the Reserve Bank show bank lending to households via credit cards was $40.5 billion in November, down 3.1 per cent on a year earlier.

The data also show that the number of active credit card accounts decreased 0.4 per cent between May and November to 15.97 million, the smallest number since March 2015, according to RateCity.

Total credit limits fell marginally with the decline in the number of active accounts, but the average limit of $9,512 was up slightly on the previous month.

The average balance on accounts that were incurring interest charges dropped by just over $10 to $1,974, but the total average balance on all credit card accounts was $39 higher at $3,260 — although this was the smallest November increase in three years.

RateCity's Sally Tindall said tougher lending rules could explain part of the decline.

"2019 could be the year that finally bursts the plastic bubble," she wrote in a note on the data.

"The Government's new regulations will force new credit card applicants to accept a credit limit they can prove can be repaid within three years.

"It will also see people rethink the merits of having multiple cards.

"Meanwhile, people applying for home loan in 2019 might choose to cancel their credit card or reduce their limit in order to get their home loan application over the line."

Debit cards on the rise

While Australians were buying less with their credit cards, they made up for it with a surge in debit card transactions.

Debit transactions are where customers are using their own savings to make a purchase, rather than borrowing money.

CommSec chief economist Craig James said analysis of the data showed a 14.7 per cent increase in the number of debit card purchases compared with a year earlier.

"The latest credit and debit card data show no signs that Aussie consumers are retreating to their burrows," he noted.

"Credit and debit card purchases in November were up 5.8 per cent over May. The previous year, growth was closer to 3.6 per cent."

The figures for November fit in with a solid month for retail sales, which were up 0.4 per cent according to the official ABS data.

Consumers are largely responsible for the weaker economic growth figures. But while the economy is still expanding, why are households feeling the pinch?

However, many analysts are expecting a payback in December, with Wesfarmers already warning that its Kmart department store chain had endured weak pre-Christmas trading.

It is anticipated that relatively new promotional events in November, such as Black Friday and Cyber Monday sales, have pulled forward a lot of retail spending that used to occur in December.

Westpac's economists noted that retail spending had been "choppy around a subdued trend" in its response to the ABS data on Friday.

"Weak wages growth, the housing downturn and drought conditions in NSW and surrounds are key headwinds," the bank's report said.

Topics: economic-trends, consumer-finance, banking, retail, australia