Cash is dead, and research says credit cards might be too

We’ve all heard cash is dead and card is king — but is it all over for the credit card now too?

Banks around Australia shut the doors to hundreds of branches and axed more than 2,100 ATMs last year as the nation heads towards a cashless post-pandemic world. Credit and debit cards were thought to be the alternative, but a Finder survey has revealed that new Buy Now Pay Later (BNPL) services may be set to take over.

The research found that credit cards are being used less, with the number of credit cards in circulation decreasing since May 2017. The research surveyed 39 experts, with 60 per cent saying that BNPL services such as Afterpay and Zip Pay are to blame.

Graham Cooke, Finder’s head of consumer research, said BNPL services are becoming increasingly popular and the trend among younger users may mean Gen Z (those born between 1995 and 2012) will be the final generation to use credit cards.

“BNPL services are hugely popular with younger consumers for a reason – they allow quick, easy credit with less risk than a credit card,” he said. “Gen Z may be the first generation since credit cards were introduced to abandon them completely.”

The research found that Gen Z is the most likely to use BNPL, with 74 per cent reporting paying for items in instalments versus just 19 per cent of Baby Boomers. However, Cooke warned that BNPL services don’t build credit history the same way that a credit card does and may result in lower credit scores for Gen Zs applying for home loans.

“The allure of BNPL services, which allow people to walk out of a store with an item and pay for it later, is strong. With many services requiring no credit checks, they offer an easy path to instant gratification with few apparent drawbacks,” he said. “BNPL services are credit products like any other [though], and all credit products come with risks.”

While many of the experts agreed the BNPL services were one reason for the credit card decline, they said other factors were also at play. Shane Oliver, AMP Capital’s chief economist, and Rebecca Cassells, Bankwest Curtin Economics Centre’s deputy director, both highlighted the impact of Covid-19 on consumers’ credit habits, saying many consumers were paying off and cancelling their cards and instead opting to save.

“[BNPL services] are one factor. But I think Australians have learned to rationalise their credit card usage in the face of credit card fees and high interest rates on outstanding credit card debt,” Oliver said.

Cassells said, “The falling demand for credit cards has also been impacted by Covid, with many consumers paying off and cancelling cards in the last 12 months and instead opting to save.”

Over 60s will remember when credit cards arrived in Australia in the early 1970s. At the time, it was probably hard to imagine that cash would ever fall out of favour, yet by 2016, debit and credit card use had overtaken cash for the first time.

In early 2020, the Reserve Bank of Australia (RBA) released pre-pandemic data indicating that the trend had continued — and may have increased due to the country’s declining cash use during the pandemic. The RBA surveyed more than 1,000 individuals — recording more than 11,000 in-person transactions — with the data suggesting that Australian consumers were continuing to switch to electronic payment methods. The survey showed that card payments had become preferred to cash for all payment amounts over $5.

Older participants of the survey were the ones who tended to use cash more frequently, which was attributed to living in regional areas and having inferior access to the internet than their younger counterparts. Older Australians tend to remain wary of debt, no matter whether it comes in the form of a credit card or a smartphone app.

We asked Starts at 60 members for the best piece of financial advice they’d ever received, and those who did use credit cards said they had just one rule: pay off the balance in full every month to avoid interest payments. So many other over 60s, meanwhile, told us that “live within your means” and “spend less than you earn” had been their life-long money mottos.

“Stay away from bad debt, like borrowing for holidays or furniture,” one reader said. “Borrow only for assets that increase in value.”

“Don’t buy anything you couldn’t pay for then and there in cash,” another reader advised. Or, as another succinctly put it, “People on beer incomes can’t have champagne tastes!”