South Africans have begun spending on their credit cards again as consumer confidence , bolstered by lower interest rates, improving economic indicators and activity surrounding the World Cup, has increased, says Standard Bank Group.
"Visible benefits associated with the World Cup were increased sales, with certain retail sectors reaping much of the benefits," said Leila Fourie, Director, Card Division, Standard Bank South Africa.
"There has been positive point-of-sale growth in credit card transactions since the middle of the first quarter, with the growth rates exceeding the consumer price index from May. This trend is expected to continue throughout the World Cup as South Africans make event-related purchases. The number of new credit card accounts opened over the recent months is also up more than 20% year-on-year."
Although spending was up, said Ms Fourie, many South Africans were using the opportunity posed by lower interest rates to reduce their credit card outstanding balances. This had positively reduced early arrears levels as well as bad debts. Debt review, does however, remain a concern.
Leading economic indicators and credit card sales
Supporting the growth trend in credit card activity were macroeconomic indicators, she said.
"Historically, there is generally a six to 18 month lag in spend and balance growth on credit cards when this is compared against leading economic indicators. Most indicators suggest a quarter two turnaround."
The South African Leading Economic Indicator, which usually leads credit card spend by around three quarters, bottomed in March last year, signalling a turnaround in the credit cycle during the second quarter of 2010.
"Various other economic indicators, including the inflation rate, consumer confidence index, sales of durable and semi-durable consumer goods and car sales have all turned the corner. Gradual growth can therefore be expected during the second and third quarters of the year, with the World Cup bolstering activity further," said Ms Fourie.
An example was car sales.
"Credit card spend tracks motor vehicle sales, tending to lag vehicle sales trends by six to 12 months.
"Spend and balance growth has also traditionally lagged 12 to 18 months behind interest rate reductions. Interest rates began to reduce in December 2008, another indication that we can expect card spend to turn positive."
Consumers gearing up to spend more as confidence grows
Household debt to disposable income lags credit card balances by about 12 months, indicating that it will still take some time for consumers to build up confidence for higher gearing.
"So, although credit card users are starting to swipe their cards again, many users are in ???pay down mode??? as they are finding monthly payments on their cards more affordable due to prevailing lower interest rates," said Ms Fourie. "As a result, spend is increasing and outstanding balances are beginning to bottom, month-on-month. "
Standard Bank and the market
The fact that South Africa card users are becoming more optimistic about the economy is mirrored through the opening of new accounts - an activity that has increased markedly since this time last year.
Credit card fraud
Credit card fraud was decreasing steadily as the banking sector moved to new technologies, which included smart card technologies and the use of PIN (personal identification number) to authenticate transaction fraud on credit card has reduced by more than 30% over the past quarter when compared with figures of last year this time.
Standard Bank has invested in chip and PIN cards and is now beginning to see the benefits. The bank is a market leader in the issuance of chip and PIN and now has 2.8m Chip and Pin Cards in issue.
The World Cup and credit card spend
Turning to the impact of the World Cup on spend, Ms Fourie said that high overseas spending had occurred off a low base. "Overseas visitor spend is up 100% off a low base. High volume countries are Brazil, Australia, England, United States and the Nordic countries.
"We experienced a spike in sales for cleaning and janitorial services as well as electronic goods in the run up to the World Cup."
Month-on-month top growth categories, up to the first three weeks of June, are:
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