Although the worst of the recession is over, South Africans are still cautious about spending on their credit cards which they used conservatively during the festive season, according to Standard Bank Group.
In reviewing credit card use over recent months, Standard Bank Group, South Africa's largest issuer of credit cards, says that although consumers are using their cards more, the turnaround in spend has been "cautious and muted".
Leila Fourie, head of the credit card division at Standard Bank, says many consumers are taking the opportunities offered by lower interest rates to reduce outstanding balances, while people are spending less on high-ticket items..
Consumer spending on airlines has reduced, however the corporate segment has shown an increase in excess of 10% on travel, off a low base.
She says some trends can be discerned across key income groups surveyed by the bank.
"In lower and middle income groups, consumer spending patterns were erratic during 2010. This changed from October with the bulk of transactions being recorded in department and clothing stores. Airline spend contracted during this latter part of the year," says Ms Fourie.
Upper income groups, used their cards primarily in retail outlets ranging from department to jewellery stores. Again, however, there was a contraction in travel and discretionary spend over the festive season.
"The number and type of transactions performed by credit cardholders through various channels indicates that there is indeed some growth taking place in the credit card arena. However, this growth is muted and below the recovery levels that had been anticipated earlier in 2010," says Ms Fourie.
Year-on-year, transaction volumes have been climbing, fed primarily by several reductions in interest rates that had a positive impact on consumers' disposable income. The average ticket value of purchases is growing slightly above inflation.
Ms Fourie says cash-strapped consumers have made increasing use of credit cards to withdraw money from ATMs since 2007.
The cautious return to credit card use could also be clearly seen in consumers reducing their outstanding balances. "Outstanding balances are still reducing as customers, likely driven by experiences during the recession, are taking advantage of the continuing interest rate relief as an opportunity to reduce their debt.
"This trend continued through December when there was a marked improvement in payments made on overdue accounts. It was evident that bank customers were using thirteenth cheques and bonuses to pay down outstanding balances rather than spend their extra income on luxuries.
"There is no doubt that consumers have become more aware of their debt and ability to service commitments. Increasingly, they are using cash or debit cards to make monthly purchases," says Ms Fourie.
"Consequently, fewer cardholders are defaulting on their obligations and the level of credit card bad debt is improving. Debt review, however, remain an industry concern."
Ms Fourie says that Standard Bank's recent experience in the credit card arena could well be indicative of a broader national trend. She says the recently published Consumer Financial Vulnerability Index also indicated that consumers generally are still financially vulnerable in spite of some improvement in economic conditions.
She says that macroeconomic indicators suggest that the turnaround in card spending volumes in 2011 will be lethargic.
"Growth in credit card spending and balances typically lags lower interest rates by between 12 and 18 months. Interest rates began to reduce in December 2008 and credit card turnover began to increase in 2010. However, outstanding balances are declining as consumers opt rather to pay off debt on a monthly basis."
"While there has been a substantial increase in customers opening new credit card accounts at Standard Bank over the last 12 months, customers are using the product far more responsibly and are managing their debt more effectively" says Ms Fourie.
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