RDP 2017-04: How Australians Pay: Evidence from the 2016 Consumer Payments Survey 4. Payment Cards

Between 2013 and 2016, the share of payments (by number) made using credit and debit cards increased by 9 percentage points to 52 per cent.^[7] The recent increase in the frequency of card use relative to other payment methods was almost entirely because cards were used more often for in-person payments; card use for online payments barely increased as a share of total payments in the 2016 CPS (Table 2).

The recent growth in the relative use of cards was strongest for lower-value transactions, with consumers increasingly using debit (and to a lesser extent credit) cards for payments of $20 or less (Figure 3, Table 3). Cards are now the most commonly used payment method for all but the lowest-value transactions (i.e. those of $10 or less). As a result, the median value of card payments at the point of sale continued to decline, from $40 in 2007 to $28 in 2016.

The relative use of cards increased across all merchant categories, with the most notable rise in the past three years occurring at food retailers (excluding supermarkets) and for transport (e.g. public transport and taxis) (Table 3).^[8] The greater frequency with which cards were used at smaller food retailers is mainly because of a rise in the relative use of contactless cards, consistent with both rising merchant acceptance of contactless cards for smaller transactions, as well as shifting consumer preferences (Section 4.2). For transport, an increase in the share of payments by card may have been associated with the rollout of electronic public transport ticketing arrangements in Sydney and Adelaide, and to some extent the introduction of mobile booking apps for ride-sharing and traditional taxi services (both of which allow in-app card payments).^[9] In comparison, there was a smaller increase in the card share of payments at supermarkets and petrol stations – these merchants had mostly implemented contactless terminals by late 2013 and already received a relatively high share of payments by card.

4.1 Debit and Credit Cards

Australian consumers use debit cards more frequently than credit cards for transactions. Debit cards – which allow people to make payments from funds in their bank account – accounted for 30 per cent of consumer payments (by number) in 2016, compared with 22 per cent for credit cards (Table 1). Since the 2013 survey, the share of debit card payments has increased by slightly more than that of credit cards (6 percentage points compared with 3 percentage points). When measured by the value of payments, credit cards still account for a larger share of consumer payments than debit cards, although the gap narrowed to less than 2 percentage points in the 2016 survey.

The increasing use of debit and credit cards recorded in the CPS is consistent with aggregate data from the Bank's Retail Payments Statistics (RPS).^[10] The RPS show that the combined number of credit and debit card transactions increased at an average annual rate of 11 per cent since 2007, with growth in debit card payments outpacing that in credit cards since the mid 2000s.^[11] There are a number of explanations for the relatively strong growth in debit card payments, including the Reserve Bank's reforms to interchange fees since the early 2000s, which have reduced incentives for consumers to use higher-cost credit cards (Simon, Smith and West 2009). Another factor has been the introduction in the mid 2000s of international scheme debit cards, which provide much of the same payment functionality as credit cards (e.g. the ability to make contactless and online payments). The broader macroeconomic environment is also likely to have played a role, with households less inclined to finance consumption using debt since the crisis (Lowe 2017).

The CPS indicates that growth in the relative use of debit cards has been concentrated among younger Australians. In 2016, respondents aged under 30 made around 4 debit card payments for every credit card payment, up from a ratio of 2 in 2007. In contrast, respondents aged 30 and over have tended to make a similar share of their payments using debit and credit cards. The difference between age cohorts appears to be because younger consumers are increasingly using debit cards for payments that they would previously have made in cash, whereas other age groups have substituted cash with both debit and credit cards (Figure 4).

The CPS also provides some insights into why younger Australians, on average, tend to use debit cards rather than credit cards. A significant factor is that around 70 per cent of respondents aged under 30 reported that they did not hold a credit card in 2016, compared with around 40 per cent of respondents aged 30 and over. However, younger credit card holders also used their debit card relatively more often than older credit card holders. Respondents aged under 30 who held a credit card made a roughly equal number of payments with debit and credit, while credit card holders aged over 30 made, on average, 2 credit card payments for every debit card payment (Figure 5).

These patterns are consistent with age-related differences in the reported reasons why consumers hold a credit card. For example, a relatively small proportion of consumers aged under 30 cited the convenience of making payments as the most important reason for holding a credit card (Figure 6). Instead, they tended to perceive debit cards as more convenient for making payments and managing finances, but were more likely than older respondents to value the ability to use a credit card to borrow money or smooth spending.

4.2 Contactless Payments

The increased use of cards for lower-value payments since 2013 has been facilitated by the adoption of contactless ‘tap and go’ functionality by consumers and merchants at the point of sale. Around one-third of all point-of-sale transactions were conducted using contactless cards in 2016, which is 3½ times the share reported by participants in the 2013 survey (Figure 7, left panel). As a share of card payments only, nearly two-thirds of all point-of-sale payments were contactless in 2016 (Figure 7, right panel).

Contactless card payments have displaced both cash and contact card payments (where the consumer swipes or inserts their card in the terminal) at the point of sale, with the pattern of displacement related to transaction value. For lower-value transactions, particularly those of $10 or less, contactless payments have mostly displaced cash (Figure 8). However, for payments over $20, contactless payments have mostly replaced contact card payments.

Consumers of all ages are using contactless cards more frequently than they did three years ago, with nearly 60 per cent of participants in the 2016 CPS making at least one contactless card payment during the week of the survey, compared with about one-third of participants in 2013. Notably, the share of respondents aged 65 and over that made at least one contactless payment more than doubled between 2013 and 2016 (Figure 9, top panel). But the use of contactless cards does, on average, decline with age. For participants aged 65 and over – the age group that made the fewest contactless payments – this mainly reflects the fact that they tend to use cash relatively frequently. However, once older Australians have adopted contactless cards as a means of payment – as indicated by having made at least one contactless card payment during the week – the latest CPS suggests that there is little difference in how frequently they use them compared to younger consumers (Figure 9, bottom panel).

4.3 Mobile Payments

The 2016 CPS provided some preliminary insights into the use of mobile devices to make card payments at the point of sale (mobile payments). These payments are made by tapping or waving a mobile phone or other portable device in front of a card terminal rather than using a physical (plastic) card.^[12] The ability to make mobile payments – whether provided via third-party mobile wallets or banks' proprietary banking applications – is a relatively new feature of the payments landscape (and was not available for all card schemes and issuers at the time of the survey). Consistent with this, mobile payments accounted for only around 1 per cent of the number of point-of-sale transactions in the week of the survey (around 2 per cent of in-person card payments). The users of mobile payments were spread across a range of age groups and tended to have above-average incomes (Figure 10).

To help understand interest in mobile payments, survey participants were also asked whether they had made mobile payments in the past, or if they would like to do so.^[13] A little over 10 per cent of respondents said that they had made or were interested in making mobile payments (Figure 11); this share was a bit higher for respondents aged under 30 (15 per cent). The remaining respondents reported that they had not or did not currently intend to adopt mobile payments. The majority of these (amounting to around 55 per cent of all participants) indicated that it was because they were satisfied with current payment methods. A further 30 per cent of respondents said it was because they did not like the idea of making mobile payments.

The apparent lack of interest in mobile payments among many survey respondents may partly reflect consumers' lack of familiarity with the technology, which was not widely available in the Australian marketplace at the time of the survey. It may also reflect a degree of scepticism about the potential benefits of mobile payments over contactless payments using plastic cards at this time; as noted, many consumers already use plastic contactless cards to make payments. Nonetheless, it would not be surprising if the share of mobile payments were to increase in the future as the availability of, and familiarity with, the technology expands. While just over 80 per cent of survey participants had a smartphone, less than half of these respondents reported that their phones were capable of making mobile payments. The remainder reported that their smartphones could not make payments, which for some respondents may have been because their phone was not equipped with the NFC technology required to make a mobile payment. Some other respondents may have been unfamiliar with the technology; around one-fifth of respondents were unsure whether their phone was capable of making mobile payments.

4.4 Surcharges Paid on Card Transactions

The 2016 CPS showed some evidence of a reduction in the frequency and value of surcharges paid on card transactions.^[14] Consumers paid surcharges on around 3½ per cent of all card payments in 2016, compared with around 4 per cent in 2013. The median value of surcharges fell to 1.0 per cent of the transaction value, from 1.8 per cent in 2013. However, the decline in the median value of surcharges should be interpreted with caution because of the small number of surcharges recorded in both surveys.

In May 2016, as part of its Review of Card Payments Regulation, the Bank announced some changes to its standards on surcharging. Under the new rules, surcharges cannot be more than the average amount that it costs a merchant to accept a particular type of card for a given transaction. The aim of the new standard was to improve price signals to consumers about the relative costs of different payment methods, and to eliminate instances of excessive surcharging (including in particular industries where this practice had emerged in recent years).^[15] The new rules took effect for large merchants on 1 September 2016, so were in place for a bit over two months prior to the survey.^[16] These changes led to reductions in the value of surcharges levied by some large merchants – particularly domestic airlines – on some lower-value transactions.

The 2016 survey showed little change in the main factors that influence whether a consumer paid a surcharge on a particular card transaction. These factors can be broadly split into those arising from the type of card used by the consumer and those arising from the merchant environment.^[17] Surcharges were paid more often on credit card payments (4.7 per cent of payments) than on debit card payments (2.5 per cent). This difference is consistent with credit cards tending to be more expensive for merchants to accept than debit cards. In particular, a surcharge was paid on a lower share of eftpos payments – which attract relatively low merchant service fees – than MasterCard/Visa or American Express/Diners Club payments (Table 4). Individuals who held a credit card that offers reward points were more likely to have paid a surcharge than people who did not hold a rewards credit card.^[18]

On the merchant side, it is more common for online (and over-the-phone) card payments to attract a surcharge than in-person payments. In 2016, a surcharge was paid on around 9 per cent of these remote card payments, compared with about 2½ per cent of in-person card payments. This difference is likely to partly reflect the fact that consumers usually have the convenient, non-surcharged, option of paying in cash at the point of sale. Furthermore, average card acceptance costs may be higher for online merchants than for ‘bricks and mortar’ merchants. As noted, eftpos payments tend to be less expensive for merchants to accept, but at the time of the survey eftpos cards could not be used for online transactions.

Merchants in some industries are also more likely to levy card surcharges than others. Merchant categories with a relatively high propensity to surcharge include those involved in holiday travel (e.g. airlines, accommodation) and those involved in (other) transport (e.g. taxis); 22 per cent and 13 per cent of card payments at merchants in these sectors incurred a surcharge in 2016.^[19] Merchant categories with the lowest rate of surcharging included goods retailers, petrol stations and takeaway/fast-food retailers. In general, surcharges are more commonly paid at merchants in sectors where credit cards are used more frequently than debit cards (Figure 12).

Footnotes

In this paper, references to ‘payment cards’ or ‘cards’ refer to debit, credit and charge cards. In the 2016 survey, gift/prepaid cards were separately identified for the first time. However, for comparability with previous surveys, gift/prepaid cards have been included in the ‘other’ payment method category. These cards accounted for around 2 per cent of the number of consumer payments in 2016. [7]

Food retailers include cafés/restaurants, pubs/bars, small food stores, and takeaway/fast-food retailers. [8]

For example, the Opal card was rolled out in Sydney in 2013 and paper tickets were withdrawn from September 2014. Opal cards can be topped up in a number of ways, including by making an online or in-person card payment. [9]

RPS data are collected monthly from financial institutions by the Reserve Bank. They provide aggregate estimates of the number and value of a range of non-cash payment methods. Available at https://www.rba.gov.au/statistics/tables/. [10]

As noted by Ossolinski et al (2014), in previous waves of the survey some respondents may have confused debit cards from MasterCard and Visa with these schemes' credit cards, particularly when making a debit payment over the internet or by pressing the ‘credit’ button on merchant terminals. Changes to the online delivery of the payment diary in 2016 may have reduced the potential for this confusion, allowing respondents to select the actual card used from a list of the cards that they held, rather than selecting the type of card (i.e. debit or credit) as in previous waves. [11]

The physical card details are typically stored (provisioned) in a digital ‘wallet’ application on the mobile device, which is equipped with near field communication (NFC) technology that enables contactless payments. These payments are different from remote payments using the internet through a mobile phone (see Section 7.1). [12]

Specifically, respondents were asked: ‘Do you make contactless payments by tapping/waving your smartphone at the checkout of a store, or would you if you were able to?’ This should capture respondents that made mobile payments during or prior to the survey period, and those that would be amenable to using this method of payment if, for example, they had access to the appropriate technology and card issuer. [13]

Consistent with the 2013 survey, a surcharge was recorded in the diary only if the respondent completed a card payment where a surcharge applied. Accordingly, the CPS provides no information about situations where a consumer switched payment methods (or purchased from a different merchant) due to a surcharge. [14]

For more information on these changes and the 2015–16 Review of Card Payments Regulation, see Reserve Bank of Australia (2016). [15]

The new surcharging rules will take effect on 1 September 2017 for other (smaller) merchants. [16]

Ossolinski et al (2014, pp 34–38) discuss these factors in more detail; here we focus only on the key results from the 2016 survey. [17]

Lam and Ossolinski (2015) find that consumers have a higher willingness to pay surcharges for credit than for debit card transactions. [18]

The high rate of surcharging for merchants involved in holiday travel could partly reflect that most card payments (62 per cent) at these merchants are made online. However, a surcharge was paid on around 7 per cent of in-person card payments at these merchants, which is higher than the average frequency for all in-person card payments. [19]