South African consumer confidence returning
1 July 2010

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:

  • Sales in electronic goods up 31%
  • Telecoms equipment / services and sales of sporting goods up 20%
  • Department stores up 12%
  • Gift and shoe stores up 9% and 7% respectively.

  • Year-on-year top growth categories are:
  • Sales of sporting goods up 29%
  • Purchases in electronics and furniture up 19% and 17% respectively
  • Clothing stores up 16%
  • Sales in luggage and music up 13%
  • Spend on entertainment and restaurants up 10% and 7% respectively.

  • Air ticket sales
    Airline ticket sales on credit cards entered positive year-on-year growth territory in the first quarter of 2010. 

    Turnover in Standard Bank and Diners Club air ticket credit card sales by corporate travellers increased by 16% in April and remained positive, although to a lower extent in May. There was a sharp drop in business-related travel during June. This could be attributed to many local corporate clients reducing business travel during the World Cup, said Ms Fourie. 

    "Much of the increase in air travel sales volumes was attributable to an increase in the number of tickets bought rather than an increase in the price of tickets," she added. 

    Credit card overview and outlook
    "Overall, our research indicates that consumer confidence, as reflected through credit card activity, is growing steadily. Standard Bank has experienced positive year-on-year growth in credit card spend since the first quarter of 2010. Lower interest rates mean a moderate improvement in the growth of credit card sales is expected to continue. 

    "The outstanding balances on credit cards became moderately positive month-on-month in March. 

    "Outstanding credit card balances are up month-on-month, but still negative when compared on a year-on-year basis. These are expected to lag credit card spending trends as customers continue to deleverage." 

    Standard Bank cards (including Bluebean) is in a strong position to capitalise on the recovery of the credit cycle and the growth opportunities expected from the second quarter onwards. 

    Presently, according to Reserve Bank statistics, Standard Bank is the leading issuer of cards, holding more than 33% of the market in loans and advances (excluding Diners Club), with Absa running at nearly 26.5%, FNB at just below 20% and Nedbank at nearly 13.1%. 

    "Standard Bank has about two million accounts and 3.1 million credit card holders, with the division recording spend of more than R50-billion, per annum. 

    "Although we are cautiously optimistic about credit card spending activity, we must bear in mind factors such as unemployment, debt review and continued volatility in oil prices," said Ms Fourie.

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