Aussies might be considering credit as inflation bites

Australian consumers are showing renewed interest in credit cards as inflation drives the cost of living higher, the Reserve Bank lifts interest rates, and the love for Afterpay cools.

As the RBA has reported the number of credit card accounts has stabilised after years of consistent declines.

Disruption

This recent change in behaviour search activity comes at a time when many thought that the Australian consumer had cut up their cards for good.

Australia has become somewhat of a hotbed for fintech innovation and disruption. It was in Australia where Afterpay was founded.

Years later, BNPL has changed consumer access to credit and spending habits in Australia and those countries where the buy now pay later (BNPL) model has been introduced.

The elephant in the room

But there is an open secret. One that hasn’t gone away. One that has regulators worried (and not just in Australia).

What BNPL companies consider democratisation of access to credit, regulators see as a risk. Here’s why.

Although the fixed repayment BNPL model means it’s more difficult for users to get into persistent debt, it’s very easy for consumers to get a line of credit with a BNPL provider.

Since some BNPLs don’t carry out a credit check, consumers can open multiple accounts.

But that’s not all. Many consumers fund their BNPL accounts with a credit card.

This is not always a problem since many consumers are responsible spenders who live within their means and use a credit card to fund a BNPL account to earn reward points.

Inflation: Is there a storm coming or a change in consumer behaviour?

In June 2022, the comparison website Finty published a study of search keyword data that clearly shows a recovery in searches for credit cards.

“Based on our analysis of search keyword data, search volume for credit cards was flat or down throughout the pandemic. But there has been an uptick in credit card-related searches in the first quarter of 2022”, said David Boyd, Managing Director at Finty.

Consumer credit card searches are increasing

“Searches for ‘credit cards’ in March 2022 were up 28% on the year before while there were 29% more searches for ‘best credit cards’ in the same period. It’s well on its way back to 2019 levels.”

What’s clear is that more people are comparing credit cards now than have been for a long time. Of the 100+ keywords analysed, 81% were up on the previous year.

The question is why, and why now?

The renewed interest in consumer searching patterns comes at a difficult time for Australian consumers who — like consumers around the world — are feeling the squeeze due to hikes in the cost of living.

That there has been an increase in searches for credit cards is obvious from Finty’s research, but it’s probably too early for conclusions.

If the cost of living is responsible for the increased interest in cards, it may recede as quickly as it has risen once prices fall back.

But given that some of the biggest increases were for travel cards, perhaps the Australian credit card market will see a more prolonged bounce back driven by consumers deprived of their freedom to roam — domestically and internationally — for nearly two years.