Faced with economic uncertainty, New Zealanders are being wily with their hard-earned cash and are avoiding getting into more credit card debt, while still supporting local online businesses with direct payments.
In the past three months the total amount owed to banks that operate credit cards plummeted by around $1 billion, as Kiwis opted out of using their credit cards to pay for things and rushed to repay their credit card debt.
At the end of June 2020, total credit card debt in New Zealand was down 14% on the same month a year earlier to $6.4 billion, according to the Reserve Bank. Total billings on credit cards in June were also down, 9% lower than June 2019.
On the other hand, payments for goods and services to online merchants using alternative secure online payment methods such as POLi are breaking records each week.
Paying for items from a bank account is more sustainable than borrowing against your future income, which is what credit card debt essentially is.
The cost to consumers
New Zealanders are increasingly waking up to the real cost of using credit cards to pay for things or services they buy online.
In this age of historically low interest rates for mortgages and term deposits, Kiwis are wondering why their bank is charging 20 per cent or more on credit card balances.
While credit cards may appear to be convenient, there is a double cost to the country. Consumers pay high interest rates on their balances, surcharges for using a credit card and the merchants who, more or less, need to accept credit card payments and pay high fees to the credit card company to get paid.
Banks argue that high rates are required because credit card debt is unsecured and is especially risky in the current environment. However banks have been willing to offer mortgage holidays and other forms of financial relief during these challenging times, but do not seem prepared to adjust credit card rates which are around 17 points higher than mortgage rates.
A third of credit card holders do not pay the full amount owing each month. As a result, Kiwis pay interest on around $6 billion of debt every month. This is good business for the banks but a poor outcome for everyone else.
The best way to manage an income is to set aside an agreed amount each month for household bills and everyday items and hide your credit card.
Make payments where possible direct from your transactional bank account. An EFTPOS card for retail spending and if you buy something or pay a bill online like a car-registration or box of groceries, use internet banking or a secure online payment service such as POLi. POLi is accepted by more than 4,000 New Zealand merchants and used by more than 1,400,000 Kiwis.
The cost to merchants
Merchants pay a fixed fee for the POLi service. On average, merchants save 40% of the transaction cost if a customer uses POLi instead of a credit card. With POLi, all fees are capped at a maximum of $3 per transaction regardless of the transaction value. For example, on a $1,000 sale, the merchant pays $17 to a credit card company but only $3 to POLi.
Simply, when you use a credit card you are paying for many services you may rarely use. POLi is technically a simple transaction which is low cost and which reduces the Merchant’s payments processing costs.
Some retailers try to recover a portion of the card fee through a surcharge. Some may charge percentage-based surcharges of up to 2%, while others charge a flat fee. Consumers need to be aware that these fees can work out to be a much higher percentage of the payment. For example, if a retailer charges a flat fee of $2 on a $20 purchase, this adds up to a 10% surcharge. Typically, POLi is free to use when you make a payment on-line.
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