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.
Standard Bank, South Africa’s largest issuer of credit cards, says that although consumers are using their cards more they are simply spending less, especially when it comes to high-ticket items.
Leila Fourie, head of the bank’s credit card division, said a lot of consumers are using the lower interest rate to reduce their outstanding balances (with the help of their 13th cheques and bonuses).
This is good news, because it means that fewer cardholders are defaulting.
“The level of credit card bad debt’s improving,” said Fourie, adding that debt review is still a big concern. She expects that card spending volumes in 2011 will be “lethargic” as consumers are still financially vulnerable.
Consumers haven’t spent as much on airlines, although the corporate segment has shown an increase of more than 10% on travel. There was a contraction in travel and discretionary spend over the festive season, suggesting that consumers may have held back a bit over Christmas.
Lower- and middle-income groups spent erratically during 2010 with the bulk of October’s transactions recorded in department and clothing stores. Upper-income groups used their cards in retail outlets, from department to jewellery stores.
Although there’s a little growth taking place in the credit card arena, it seems this will remain muted and below anticipated recovery levels. In December last year, there was an improvement in payments made on overdue accounts, which shows consumers have become acutely aware of their debt. They are using cash or debit cards to make monthly purchases, which is a good development.
“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. But outstanding balances are declining as consumers opt to pay off debt on a monthly basis,” Fourie said.
Even though more customers opened new credit-card accounts at Standard Bank during the past year, customers are clearly using their cards more responsibly and managing debt more effectively. If this is a national trend, it’s one to be optimistic about.
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