Citi Australia is confident it can buck the gloom in the $32 billion credit card market and withstand challenges from the likes of Afterpay and Apple by teaming up with loyalty schemes and offering new types of unsecured loans to customers.
The behemoth US bank's plan to carve out a bigger slice of the credit card market, where it is the fifth largest lender behind the big four banks, comes as it is also grabbing share in the mortgage market, a trend that has been helped by the royal commission.
The value of credit card debt accruing interest in Australia has been sliding in recent years, to about $32 billion. Borrowers are paying off their balances on time and have embraced debit cards and alternatives such as buy now, pay later service Afterpay. Alongside tighter regulation of credit limits, these changes have made credit cards less lucrative for banks.
But Citi's head of retail banking in Australia, Alan Machet, said he saw a long-term future for the credit card despite declining borrowing, and the threat of digital payments platforms such as Apple Pay.
Citi's growth push in credit cards is part a wider attempt to exploit the erosion in trust in the 'big four' after the banking royal commission, by pinching customers from the major lenders while they are bogged down in regulatory spending and changes.
"Here is our golden moment," Mr Machet said in an interview with the Sydney Morning Herald and The Age.
"These guys have lots of change they need to do. They've got process, policy, technology investment, they need to make that is hard, and can get in the way of customer experiences, is not going to enable them to focus on their growth."
Citi is the biggest credit card issuer in the world, and has 12 to 13 per cent of the domestic market, including via partnerships with Bank of Queensland's Virgin Money, Coles and Qantas.
While consumers have grown more reluctant to rack up debt on plastic in recent years, Mr Machet said there was strong demand for a product that allowed borrowers to convert credit card purchases into an instalment plan, with repayments made at a lower interest rate, and over a set term.
Citi says use of this option has increased six-fold in the last year, albeit from a low base. It predicts unsecured loans like this will become more common for financing spending such as holidays.
"I think it's going to become a core part of what's in a credit card. I certainly don't think credit cards are going anywhere," Mr Machet said.
The traditional plastic credit card is also being challenged by "digital wallets," such as Apple Pay, which takes a slice of banks' revenue for allowing customers to use their phones to make tap-and-go purchases. However, Mr Machet said the domestic take-up of digital wallets had been lower than expected.
"If you were to ask me three years ago, I would have said Apple Pay, Samsung Pay, Google Pay, are going to sweep away plastic," he said.
While some customers were initially curious about using their phone to make purchases, he said they often later returned to using the plastic card. "We have not seen massive take-up in those, certainly [not] as much as we thought we would," he said.
He said a longer-term source of value for banks in this area would be in providing digital services that integrate with loyalty schemes, such as Qantas frequent flyer points, and allowing customers to make purchases with their points.
"All of that stuff is where our real opportunity is," he said.
In the mortgage market, where Citi has a small share of less than 1 per cent, it has also been bucking the market-wide slowdown. It says settlements in the three months to May are up 64 per cent on the three months that immediately preceded that period. The bank is passing on the full 0.25 percentage points interest rate cut made by the RBA last week to its customers.
While some bankers at the big four grumble the likes of Citi enjoy more favourable capital rules due to overseas regulation, Mr Machet played this down and said Citi had benefited from the overhaul of procedures happening inside the local banks. Citi had similar changes following the global financial crisis, he said.
"What we've found has happened over the last 12 months is people have moved to a standard similar to where we were. I think that's been very helpful for us," Mr Machet said.
Mr Machet said last week's 0.25 percentage point reduction in rates would support the property market, but he said the banking regulator's plan to increase customers' borrowing capacity would have a bigger impact. Although most customers don't borrow their maximum amount, he said people often compared what they borrowed with their limit.
"When they know they could get more, that's always going to help with confidence," he said.
- SMH/The Age