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Record Low Interest Rates Fail to Spur Credit Card Relief

Record Low Interest Rates Fail to Spur Credit Card Relief

(4 May 2020 – Australia) Despite a generational low in official interest rates and a increasing risk of a severe recession, credit card interest rates remain stubbornly high.

Despite the Reserve Bank of Australia (RBA) slashing the official overnight cash rate to 0.25 percent from 1.5 percent in the last year, credit card rates have remained motionless. Interest rates on credit card balances remain well into the double digits with many banks charging over 20 percent.

RBA data confirms the ‘standard’ credit card interest rate currently sits at 19.94 percent, slightly higher than Q1 2019 levels. Lenders are at pains to point out their high rates are impacted by other variables aside from the official cash interest rate which is only one factor in determining card ‘pricing’. Major US credit card issuers are even starting to lower customer spending limits as the coronavirus pandemic leaves millions of Americans jobless and struggling to keep up on loans.

East & Partners newly released Merchant Payments research confirms an ongoing shift away from credit to debit based on direct interviews with 2,200 merchants. As a breakdown of merchants annual receivables, Debit Card transactions continue to accelerate in preference, comprising over two thirds of all transaction volume and trending steadily higher. Interestingly Debit volumes are lowest among SMEs and corporates yet surpass 60 percent for Microbusinesses and the Top 500 enterprises by turnover.

The debit transaction market has become significantly more important for banks in the context of the coronavirus pandemic as banks go on the defensive to absorb distressed and bad debts certain to flow onto the market, especially around unsecured lending.

Banks highlight that no interest is paid by consumers who pay off their credit card debt in full by the due date while many lenders have offered relief for those in financial hardship due to the coronavirus pandemic. Some are offering six-month repayment pauses, though that means the amount of the balance will be higher at the end of this period as interest continues to accrue. Some lenders will consider reducing the interest rate paid on a card for a certain amount of time.

Westpac is waiving interest for three months for successful applicants and has also finally switched on Apple Pay for its customers, spraining that it will also include eftpos functionality from the outset. The decision to include eftpos functionality will pressure other banks still yet to activate the local payments scheme on Apple Pay, especially the CBA and NAB which is yet to activate eftpos for Apple Pay.

“This comes at an important time for our customers, who are looking for an alternative to cash. We have seen a significant increase in customers using digital banking in recent weeks as more Australians stay at home. With the introduction of Apple Pay, it will now be even easier for customers to pay for goods and services in stores, via apps or online without the need for a card or wallet” said Westpac Retail Bank Head David Lindberg.

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