There is a clear indication of a slowdown in consumer spending with the continuous warning of increasing credit card debt in Australia. Comparing credit card applications between the fourth quarter of 2010 and 2011, the latter year revealed a decline in applications by 9.9 percent which also denotes a decline in consumer confidence. This is the second largest drop in six years. Queensland experienced the biggest decline of 14.5 percent by yearly comparison, followed by New South Wales with 11.8 percent, and Victoria with 7.7 percent. Prolonged consumer caution and economic uncertainties have caused consumers to hold back on their spending, even mortgage enquiries recorded a decline for eight consecutive quarters now.

“To see such a marked reduction in the use of credit by consumers in the period leading up to the Christmas holidays is unusual; the final quarter of the year is typically a time when there is stronger demand from consumers to obtain new credit,” said Angus Luffman, Veda’s Head of Consumer Risk.

Increasingly, consumer awareness on the importance of saving impedes any opportunities for growth in new credit card applications as well as credit card usage. Although this decline may be in contrast with the Australian Securities and Investments Commission (ASIC) debt clock, efforts of credit card companies to encourage credit card usage should not be discounted. Reports of unsolicited offers to increase credit limit are fast increasing to circumvent the by-laws of the new credit reforms as well as increase credit card usage. The credit reforms also introduced responsible lending laws in 2011 which has led to extra steps being added to credit card application processes.

The overall interest in credit card collapsed in 2011 with the demand for personal loans surpassing the demand of credit cards in Western Australia from the December quarter of 2010 until the December 2011 quarter. The volume of personal loan transactions began to surpass that of credit cards for the first time. Over the span of 2011, personal loans showed dominance half the time ending in a reasonable 3.8 percent increase in transactions. This surge was slightly attributed to the year-end seasonal rise in car loan demand.

Furthermore, the increase in use of debit cards has a clear effect in the number of credit card applications. The use of debit cards is encouraged by consumer groups and financial planners particularly for money-savvy consumers who are trying to avoid debt. Some credit card holders now prefer giving out debit cards instead of extension cards to encourage discipline in the usage for the receiver. People are realizing that debit cards are a great way to control spending whilst enjoying the benefits of cashless transactions.

According to Roger Mendelson, Chief Executive of Prushka Fast Debt Recovery, their company is collecting debts of more than two million Australians for approximately 44,000 small to medium businesses. Prushka Fast Debt Recovery is one of Australia’s largest privately owned collections company with debt collections from as low as $45 and the average debt is approximately $300.

“Any householder who has had unpaid debts over the years, the chances are they are on our database,” said Mendelson. “By the time the debt comes to us, it’s fairly seriously overdue.”

Mendelson explained that when their client’s customers are forwarded to them, these customers often have outstanding debts that are at least 90 days overdue. Mendelson advised consumers who are contacted by debt collectors to stop avoiding these collectors and should not regard the collection agency as an “enemy”.

“My advice is if you can’t pay, communicate by phone quickly and be upfront. Be polite … the worst thing people can do is ignore the debt because it puts them on the back foot,” he said.

According to Tammy May, Director of MyBudget, unpaid bills can be resolved with debt collectors — just be upfront about your situation.

“Work with the debt collector, let them know your position, why you have fallen behind and what you can afford to pay back on the debt. Make sure it’s realistic,” said May. “Although it can be embarrassing and stressful to receive that type of call, it really is best not to bury your head in the sand and try and ignore it.”

Debt collectors will not make customers promise to pay for an amount that they won’t be able to pay in the end because at this stage, it is important for customers to follow through on their pledged repayment.

Some debts are permanently recorded in their credit file. However, May explained that it can be varied from case to case. There are lenders who specify in their policies that debts are not recorded on a consumer’s credit file. Consumers should double check their lender’s policy.

However, this does not mean that consumers with overdue bills are given a leeway – just a bit of leniency. In this regard, if a consumer is worried about getting that big black mark on their credit file, they are advised to discuss with their lenders a possible payment schedule for their debt whilst in financial difficulty. Consumers will be surprised by how lenders are more flexible than they project to be.

Prior to this practice, merchants – retail and service companies that accept credit card payments – added the cost of transaction fees to their prices which meant that even customers paying through cash and cheque were absorbing the credit card transaction fees.

In an effort to make pricing fair to all parties, the Reserve Bank (RBA) allowed merchants to charge extra for credit card transactions while removing the said transaction from the actual cost of products and services.

The RBA is largely pleased with the results of the decade long practice of charging extra for credit card fees: a third of merchants charge for using cards and at least another third are considering doing so; whilst Visa and Mastercard have cut what they charge the retailers by 0.6 percentage points which is what the RBA intended.

The RBA now believes some retail and service companies charge too high for credit card transactions.

RBA assistant governor for financial system Malcolm Edey says there is anecdotal evidence that some businesses are imposing a surcharge above the cost of the transaction.

Some businesses are levying the same fee on consumers for low-cost cards as those with high-cost cards and that others impose a surcharge well above the cost of the transaction.

“Although these practices do not appear to be widespread, they are of concern from a payments-efficiency point of view because they can distort consumer choices about the payment methods that they use,” Edey said in a speech in Sydney. “They go against the principle I stated earlier of allowing the efficient flow of price signals to the economic decision-maker.”

It is for these reasons that the RBA reopened consideration of the surcharging standard last year.  From last year’s efforts, the RBA is drawing up new rules that will allow card companies to limit what merchants charge to the costs actually incurred by the merchants.

Although not particularly targeted, the new rules will affect the 10 percent charge imposed by Cabcharge and similar companies for using credit cards to pay taxi fares, as well as the $7.70 charge imposed by Qantas. RBA data shows the cost to the merchants is typically 0.81 percent.

Edey said the new standard would limit the surcharge imposed on customers, though it may not necessarily be capped at the cost of the transaction.  He hopes the changes would lead to lower transaction costs for businesses and consumers.

Edey also clarified that although credit card providers would be able to take action against businesses that imposed excessive surcharges on customers, businesses will still be allowed to recoup the costs of transaction.

“In that way I think it strikes a reasonable balance and it should strengthen the incentive for schemes to compete in lowering their fees to merchants,” he said. “The less a scheme costs to merchants, the lower will be the permissible surcharge.”

Another concern to the RBA is the weaknesses in the system of internet transfers between bank accounts which can take up to a day rather than minutes and a lot of special numbers are needed to make them work.  The RBA views internet transfer lacking a truly seamless system.

“I can pay someone with a cheque when all I know about them is their name,” Edey said. “But if I want to make an electronic payment, I typically need to know a 6-digit BSB number and a 9-digit account number.”

Although the changes that will be imposed by the RBA will not cure all consumer complaints, these changes are in the right direction to make credit cards and online banking truly financial assets for consumers.

The hardest hit by the continuous increase of living cost are low-income earners wherein 46 percent of these households foresee having difficulty in managing their debt. These numbers are 11 points above the national average and increased by 8 percent from the last quarter of 2011. The research also revealed that 12 percent would opt to default on a mortgage repayment or internet bill; 14 percent said they would opt to default on their pay TV account.

“Unfortunately, we are seeing the least solvent consumers accumulating unmanageable levels of debt, while those best able to meet credit commitments are avoiding spending altogether,” said Gareth Jones, Dun & Bradstreet Chief Executive.

In the Australian Securities and Investments Commission’s (ASIC) debt clock, the current average credit card debt is $4,867 and is continuously increasing. Jones explained that even though low income earners are distressed over their ability to meet their financial responsibilities, they are the ones often pushed to acquire more debts during hard times.

“Nearly one-in-three low-income households expect rising household debt levels, but with limited ability to pay this down. When consumers are increasingly forced to accumulate debt they are unable to manage just to keep family finances afloat, this has the potential to quickly become a vicious cycle,” Jones said.

In a separate study conducted by Genworth Financial, their research revealed that Australians have metamorphosed into consumers who are comfortable having higher levels of debt. Nonetheless, Aussies still maintain their ability to save at near-record levels.

“What we’re finding is that there is almost no correlation between indebtedness and stress. Australians appear slightly more indebted than they had been, yet stress is not going up. And if they’re comfortable with their debt and they’re not stressed, the likelihood is they’re going to borrow more,” said Alan Shields, RFi Research Director.

The separate data may not be conflicting at all given that Aussies are getting smart with their debts which is probably boosting their confidence in acquiring more. However, acquiring debt can be very tricky especially if not managed responsibly.

Some Aussies may simply be taking advantage of the interest-free days of their credit cards to stretch their cash flow and use their cash on hand for urgent matters such as debt and bills payment. There are several credit cards in the market offering as long as 60 interest-free days which gives cardholders the opportunity to use their cash to increase their mortgage repayment or open a 30-day term deposit and still be able to repay their credit card without the worry of getting penalised with high interest rates.

NAB requires clients to spend $27,000 to get 13,500 points for a voucher, Westpac’s Altitude Rewards Mastercard can earn a user one point per dollar spent but must spend $16,950 to break even with its $100 annual fee (same is true with CBA, only the annual fee is lower at $89), and HSBC’s Classic Credit Card may have the lowest annual fee at $59 but it requires customers to use up to $18,400 to avail of a $100 Myer voucher.

Apparently, there is nothing we can do to improve the rewards programs of credit card companies. However, taking our focus out of credit rewards program and giving our credit scores attention may give us something to look forward to. Here are some “fast fixes” to consider when trying to improve credit scores and maximising credit card use:

1. Add an installment loan to the mix  - Credit scores will surely get the lift it needs when you show lenders that you are responsible in terms of handling major kinds of credit  also known as revolving credit (credit cards) and installment (personal loans, mortgages, etc.).

2. Try paying above minimum - Make paying down your credit cards a set goal. Lenders consider the big gap between the amount of credit you are using and the available balance. As much as you can, do not go over your card’s limit and pay cards closest their due.

3. Say goodbye to an old card - The older the card, the better. Old credit cards make a lot of influence as to how you will score. But if you stopped using old cards, the issuers may cut the account and stop reporting to credit bureaus. This is not a good thing for your score as the account may still appear on your credit report especially if you still have a balance, no matter how trivial the amount is. So it is best to decide on maintaining a certain number of cards you are sure will be of use.

4. Get some goodwill – If you have been a good customer, there is also a good chance that a lender might agree to erase one late payment in your credit history. All you have to do is to make a written request for a “goodwill adjustment.”

5. Dispute old negatives  - For good credit scores, you can continue protesting for  charges you sure were unjust. You can even try disputing the charge to credit bureaus as “not mine.”

6. Check for significant errors on your credit reports - Remember that credit scores are calculated based on credit reports, so tiny erroneous data can significantly affect credit scores. Be sure to make time to study these reports and immediately notify credit bureaus if you found some errors.

Current times reflect a constrained credit growth because households are paying down debt, banks and card issuers have changed their strategy to jump start their income from credit cards.  Platinum credit cards are now said to be the carrot often used to lure customers to decide between competing home loans by the big banks.  Sometimes, the cards arrive unsolicited in the mail as an upgrade to a loyal customer deserving of a new platinum status symbol.

The new practice has led consumer groups to accuse the banks of appealing to people’s vanity in order to make more money out of the credit card market. After all, very few people can resist the allure of credit cards that offer status via exclusive member rewards, bonus points and the hope that a weekly load of supermarket shopping might turn around a reward program vacation.

Consumers though must be cautious before they use these upgraded credit cards and check out the fine print as platinum cards may come at a cost that most people may be unable to meet.

The Reserve Bank (RBA) says major banks began a process of upgrading their gold cardholders to platinum products, which the RBA says is the clearest example of card issuers altering their card portfolios to take advantage of price differentials in interchange fees.

”Effectively, the cardholder receives a new platinum card product (or card product offer) in the mail to replace their existing gold credit card for no additional cost or annual fee. In some cases, upgrades have been automatic in that the cardholder receives a new platinum card through an unsolicited mail-out,” the RBA said. “The move to upgrade cards in this way allows issuers to increase interchange revenue received on those cards, which may more than offset the cost of offering any additional reward points or other benefits.”

The RBA also points out that there has been significant growth in the premium segment of the credit card market and has changed the characteristics of the credit card market as a whole.

”Platinum cards, in the traditional sense, were originally designed to attract high-spending customers; these cards were previously few in number and offered both relatively generous reward points and other benefits.”

But now, platinum cards are no longer as exclusive with a caveat that it is now harder to receive the higher rewards, even as more customers have been upgraded to the higher fee-paying categories.

Unfortunately, the strategy of upgrading existing cardholders, offering platinum cards with additional benefits or more generous rewards for no additional annual fee, has the effect of generating increased interchange revenue for the issuer every time a customer uses their card.

Thus when the bank offers a status upgrade to a premium card, there’s a good chance they are offering a product with a higher fee structure.

Christopher Zinn, spokesman for consumer group Choice, also warns that customers should check the issuer is not also moving the reward points further out of reach once they have upgraded the card.

”It’s a constant arms race for something more exotic and exclusive,” chides Zinn. ”Soon they’re going to have to come up with something rarer than platinum.”

The study showed that 41 per cent of respondents are expecting to use their credit cards to cover costs and purchase regular consumer items; 4 per cent higher from the December quarter report of 2011.

The Consumer Credit Expectations survey evaluates consumer expectations for credit card use and applications throughout the succeeding quarter. The latest report showed that at least one third of Australian households will find it challenging to manage current debts, with a 46 per cent share coming from low-income households.

Gareth Jones, Dun & Bradstreet chief stated that the results presented an uneasy cycle of debt dependency and accumulation among struggling and low-income households. “When consumers are increasingly forced to accumulate debt they are unable to manage, just to keep the family finances afloat, this has the potential to quickly become a vicious cycle,” Jones said.

Based on the survey, 27 per cent of families were looking to apply for a new credit card or increase their limits during the next quarter; this despite the present and growing financial strain. At least 25 per cent of the respondents stated that a default on mortgage payment would be experienced if funds ran short. Ironically, redraw facilities were being planned on current mortgages by 22 per cent of respondents to make a major purchase; an increase of four percentage points from 18 per cent in the same quarter last year.

Data from the Reserve Bank of Australia (RBA) have shown that credit card debt is rising on a steady rate from $48.7 billion in August last year to $50.6 billion in February 2012. Credit card debt accumulating interest has likewise increased to $37 billion in February 2012 from $35.8 billion in September 2011.

On the side of credit card providers, HSBC released a report stating that Australians are shunning the gold credit card and prefer the rewards-heavy, no-frills, low-fee credit card. Platinum card numbers, according to their research, have remained stable.

HSBC Bank Australia’s head of credit cards David Walker shares that consumers are more cautious and are trying to pay down debt as well as evaluating their credit card requirements more dutifully. Walker said, “People are becoming a lot more conscious around what they are paying for.”

The Credit Card Monitor survey of HSBC showed that there was a 14 per cent drop of mid-range, or ‘gold’ credit cards since 2009 whereas low-fee ‘classic’ credit cards have risen by 13 per cent.

The overall value gained from credit card reward programs has decreased, according to the RBA, stating that in 2003, a value of $12,400 needed to be spent to gain a $100 shopping voucher; to earn the same voucher in 2011, a credit card user had to spend $18,400.

Although consumers try to balance out debt and try to spend appropriately, rising costs of utilities, private health insurance, commodities, petrol and other necessary daily fees make it difficult not to go into debt. Moreover, the increased living costs are not alleviated by better job opportunities for the unemployed and part-time employed.

According to Nick Aronson, CBA’s general manager of transaction banking solutions, CBA contactless transactions rose from 300,000 per month in December 2010 to 1.3 million per month in December 2011.

Aronson made the announcement at last month’s Near Field Communication (NFC) World, a conference held in Sydney examining the payment opportunities available with NFC. NFC is a technology that allows consumers to make transactions through their phones or by waving a contactless card in front of an NFC reader.

Aronson also noted that the number of NFC readers in Australia rose from 18,000 to 30,000 in the same period.

“Contactless is not necessarily a new technology. It’s becoming more ubiquitous in terms of card rollout and additional devices. It’s really still some of the cool form factor that’s driving some of our take-up,” he said.

Even if practicality is not the sole reason for the rise in contactless transactions, smartphones still accounted for a third of connections to the CBA net banking system, which accounts for a 230 percent increase from the previous year.

This assertion is backed-up by more than 120,000 downloads of CBA’s smartphone app Kaching, which includes a facility for NFC payments.  Also, in December last year there were more than 100,000 transactions made with Kaching.

The favourite device used by Aussies were Apple iPhones and iPads, which make up the overwhelming number of NFC smartphone payments thru Kaching, although a few Android devices were also used, according to Aronson.

“When you look at what devices were accessing Net Bank, the vast majority of them were through Apple devices,” he said.

Retailers though would have to think twice before getting into the NFC game this early as according to Aronson, most customers were using NFC to pay each other rather than for consumer-to-merchant interaction.

“Because of the requirement to buy an extra piece of hardware, the tap-and-go piece is less prominent in terms of what customers are using it for,” Aronson said. “We’d like to give the cases away for free but those of you who have dealt with Apple know that’s not a realistic business model because of the amount we have to pay Apple.”

Apple iPhones and iPads are fitted with special cases that allow NFC payments, users then register the case with the app to enable the NFC.

A better and cheaper alternative would be BlackBerry smartphones as Research in Motion, the maker of BlackBerry smartphones, has been an innovator in embedding NFC capability within their phones.

However CBA data shows the use of BlackBerrys for NFC transactions through the bank has been minuscule in comparison to Apple and Android devices.

“Unfortunately a very small component is BlackBerry and that’s a function of as much of who are carrying BlackBerry’s as the known questions around the internet access and browsing speed on BlackBerry devices at the time,” Aronson said.

One advantage of contactless payments, according to Aronson, is the reduction of transaction time which has aided those waiting in queues to pay for items such as food at the AFL.

Comparing elapsed transaction times between cash, PIN and NFC at caterer Delaware North at Melbourne’s Etihad Stadium: the average processing time for a cash transaction is 35 seconds, while a transaction requiring a PIN number is 15 seconds, but for a contactless terminal the transaction time was under 3 seconds.

As technology improves and development of NFC devices becomes cheaper, more people will embrace contactless payments as the advantage of using it is quite clear for people always on the look-out for quick and convenient transactions.

According to the Australian Bureau of Statistics, out of the 13.3 million Aussie internet users, the third most-popular activity performed online is banking and paying bills online (64 percent), falling behind web browsing and emailing. Old-fashioned banking methods like scribbling a cheque presented a major decline as web and mobile banking continues to boom. Data from the Australian Bureau of Statistics show that in 2010-2011, there were only 256 million cheques issued compared with 467 million in 2005-2006.

Peter Evers, Federal Government’s Financial Sector Advisory Council says: “The smartphone will become the ultimate banking tool. It will act like the eftpos machine. Instead of having a debit cards or credit card, smartphones will soon have that technology and it’s starting to emerge now.” Banking, he believes, will dramatically change from physical call centers to visual conferencing through smartphones. There will be less need for consumers to go to an ATM and eftpos machine or their bank branch, all they will need is their smartphones.

Safety, when it comes to mobile banking is a source of long-time debates over the years. Some experts say that mobile banking is the perfect attraction for identity thieves. Here are pros and cons every consumer should weigh before signing up to the latest innovations in banking:

PROS (it is just a matter of preference and phone compatibility and making sure that you have an identity theft protection plan):

• Mobile banking boasts of “anytime, anywhere” policy.
• Besides calling, there are other alternatives to transact with your bank through mobile banking (phone web browser, a special software that only needs a few minutes to download, via sending a text message to their customer support).
• Account numbers are not usually transmitted over wireless cell phone connections so in the long run, the process eliminates exposure problems encountered with computer-based banking and lowers the risk of identity theft.
• Most banks use encrypted servers for all wireless transactions (unlike retailers) so consumers are assured that banks are not taking any risk when it comes to the protection of their clients.
• The added service of mobile banking is generally free of charge.

CONS (mobile banking is not a tried and true system yet):

• Some features, like text messaging, are not yet encrypted and they are stored in the phone, making the consumer vulnerable for interception and identity theft if his phone is lost or stolen.
• Many smartphones are not yet compatible with  anti-virus softwares. Consumers should never assume that anti-virus softwares is not necessary for cell phones. Identity thieves are also looking for ways to implement some of their most successful computer tricks (phishing, spamming, account hacking) to smartphones.
• Some banks do not offer the same level of protection for mobile banking than they do for online or in personal transactions. So it is best to check with your specific bank to see what their policies are before enrolling in a mobile banking program.

According to Dun & Bradstreet, a credit reporting agency, 41 percent of Aussie households with an annual income of less than $50,000 should expect the need to use credit to cover living costs. This is a significant increase from 37 percent in December 2011. The data was released in the quarterly Consumer Credit Expectations survey, a survey that looks into Aussie’s spending habits, credit use and debt expectations. The survey revealed that more than 33 percent of Aussie families will experience difficulties in managing their existing debts wherein 46 percent of low-income households are already struggling.

Gareth Jones, Chief of Dun & Bradstreet, explained that the findings of the survey denotes a dependency and an alarming cycle of debt accumulation amongst struggling households but to some, this does not come much of a surprise with the government’s debt clock continuously increasing at a very fast pace. The current average balance of each credit card is now at $4,800.

“When consumers are increasingly forced to accumulate debt they are unable to manage, just to keep the family finances afloat, this has the potential to quickly become a vicious cycle,” Jones said.

Accumulating credit card debt can strain a household’s finances so cardholders are urged to avoid using their credit cards particularly if they are uncertain of being able to pay their balance on time. Credit card interests vary from 13 percent to as high as 21 percent which will be very difficult to manage once it starts to kick in. Surprisingly, in spite of reports of growing household financial strain, 27 percent of families are still looking into applying for an increase in their credit or getting a new credit card in the next three months.

The report also revealed that more than 25 percent of Australian households said that if they were having financial difficulties, they would default on their home loan repayments. Also, 22 percent said that they are planning to use their mortgage redraw facility to make a major purchase which may not be a good idea but it may be a better option than using their credit cards.

In a cashless society, the use of credit cards has been a way of life rather than an option. However, misuse or abuse of credit cards can lead to serious financial trouble that may take several years to resolve. This is why, time and again, financial advisers continuously remind cardholders that their credit cards are not free cash & that purchases through credit cards are debts that need to be repaid. Thus, even if a cardholder’s credit limit is sky-high but will be unable to repay their credit usage on their due date, then they should only use up credit that they can afford to repay on time to avoid wasting money on interests.

Reserve Bank of Australia has presented data showing that ATM cash withdrawals have declined sharply, with January 2011 showing a decrease of more than 900,000 withdrawals compared to the same time last year; and the lowest value since 2005. December 2011 figures showed the drop by 1.7 withdrawals compared to the same time in 2010. Consequently, the average transaction has likewise been recorded at $89.53 for January 2011.

Russell Zimmerman, executive director of the Australian Retailers Association, said that consumers are leaning towards carrying cash less and prefer contactless payments. He told ABC Breakfast, “We know that Visa and MasterCard in particular are trying to get us to go to the contactless type payments, we know that EFTPOS is looking at it and intending to make a foray into that area.”

This trend indicates that consumers are more inclined to use either a credit or debit card; this may in a period of time suggest the transition into a cashless society. Debit card account approvals have risen to an average of 5.6 per cent annually; and debit card transactions rising to 12.5 per cent annually.  On the other hand, credit card growth has been observed as the slowest, with limits reaching 0.7 per cent compared to last year.

These values show that despite the option to pay using the credit card, Australians are still hesitant to pay needlessly and increase personal debt. Debit card transactions have been seen as triple that of credit card transactions.

Zimmerman has made an example of the declined use of the cheque as a form of payment tender, “We know for instance that cheques are on a decline, there’s about eight years left in the cheque system… and then we probably won’t use cheques, we’ll have to find other forms of payment,” he said. “So if you project far enough you probably will see that cash will almost be a thing of the past in the retail industry.”

Zimmerman added, “What we’re seeing is where people are using cards they’re using debit cards – they want to use their own money, or if they’re using credit cards they’re paying them down immediately.”

Some consumers mention that cash is less annoying; however, its uses include instant discounts, for items less than $25 to remove the hassle of entering pin numbers or signatures, paying for low-cost items and petrol, and other controllable purchases.

He also cites the behaviour of corporate spending, with the increased use of corporate cards and fleet cards, organisations are trying to maintain low cash flows as much as possible to be able to extend payments.

This trend has been deemed by Zimmerman as an advantage for the retail sector stating that, “From a retailer’s perspective obviously there is a cost involved in putting the technology in from a hardware basis, and there’s also the cost from retailers that may need to upgrade their computer systems.”

Tips for a happy and secure mobile banking

• Make sure that you actually need the app – Do some research before downloading any mobile banking app. Visit your bank’s website using your phone’s browser and check whether it is an easy-to-use mobile site. See if it already suits your banking needs. If not, be sure to bookmark the app you will download for easy access. Having to type in the website address all the time is impractical.
• Pay attention to which app store you use  - Two of the safest ways to download a banking app are to either download it directly from your bank’s website or to follow a link from the bank’s website to the app in an app store.
• Check the source  - Definitely, you do not want to be one of the first people to try a new app especially with regards to mobile banking.
• Password protect and auto-lock your phone  - The app and your smartphone should both be protected with a password that is difficult to guess (avoid using your birthday as password, etc.). In doing so, you are making sure that no one but you will be able to access your account.
• Do not use public WiFi when banking - Public WiFis are unencrypted making it unsafe. When doing anything financial via smartphones, it is best to make use of your mobile provider’s internet services.
• Download updates whenever they are available - Such may include fixes to any security flaws.

The study also revealed that Australians are still purchasing Australian products when shopping online. There are signs that international sales are catching up but in 2011, three-quarters of Australian purchases were still acquired from online retailers based in Australia. Although the domestic sales increased 25 percent in 2011, the international sales fared better with its 40 percent increase.

Even though online shoppers in Australian cities were responsible for almost three-quarters of purchases over the Web, the increase of spending in metropolitan areas outgunned that of the regional areas. The NAB study also revealed that most online buys on a per head basis were done by consumers between the ages of 30 and 40. However, it was a different story back in 2010 when the biggest growth area were purchases done by consumers below the age of 30.

The largest share of retail shoppers is from New South Wales at 35 percent. Next on the list are Queensland and Victoria. The largest in terms of amount per person were the Northern Territory and Australian Capital Territory. Western Australia reportedly had the biggest increase in online shopping during the last 2 years.

In terms of sites, Aussies pretty much preferred cosmetics, fashion and variety stores, department stores and auction websites as well.  Almost half of the sales fall within all these categories. Toys, music, games, books, movies, appliances and electronics accounted for 20 percent of items bought online. Growth-wise online sales of food, toys and beverages recorded the fastest rise in the past couple of years.

It is clear that when it comes to certain goods Australians are still loyal to the traditional stores. Websites purveying groceries, specialised food and liquor make up the smallest online sales group, which should not be surprising because of the importance of perishables and fresh food.

As early as now, retailers are clearly caught in the middle. With the popularity of online shopping on the rise and the importance of keeping traditional stores, retailers really have a lot to think about.  Should online retailers continue to work on developing their websites to further improve online sales? Should traditional store owners concentrate on improving customer service in their respective stores or opt to have their online stores as well?

It is an on-going battle. Traditional does not mean old. Those stores have just been there since the beginning of time and without merit. Shoppers still go for the experience.  Changing stores or techniques now will prove to be challenging because not everyone welcomes change or the internet. There is fear of hackers and of course, the fear of getting scammed. Being cautious is the key, wherever it is one thinks of shopping. Nonetheless, everyone has to go with the changing times to move forward.

After the passing of credit card reforms ten years ago, the premium offerings are now used by banks and other credit card issuers to legally circumvent the reforms that reduced the hefty fees banks billed each other every time a credit card was used. Ten years ago, the Reserve Bank of Australia (RBA) was troubled that credit card holders might be subsidised to use their credit card through provisions that contributed to merchants’ costs. With each swipe of a cardholder, the merchant’s financial institution paid interchange fees to the cardholder’s financial institution. These fees are then used by card issuers to fund lucrative rewards programs on credit card products.

However, at this time of economic uncertainties, credit restrains and increased efforts of Aussie households to repay their debts, banks and credit card issuers may find it difficult to earn those fees. In turn, these financial institutions appeal to the consumer’s vanity by offering status symbol credit cards that gives exclusive member rewards such as bonus points, mileage points, gifts, discounts and a whole array of free services.

These exclusive cards have been pointed out by RBA as a new-found way of banks to claw back the fees that were affected in the RBA’s reforms. While the interchange fees have been monitored, the exclusive rewards and bonus points are not given for free. Cardholders pay a hefty $500 in annual fees, not to mention the interest rates that come with these cards.

”Card schemes have found ways, within the bounds of the Reserve Bank’s regulation, to increase incentives for card issuers to promote particular products within their suite of offerings; card issuers have responded, particularly through new strategies focusing on the premium segment of the market,” the RBA said.

Essentially, premium credit cards have a higher fee structure that will cost the cardholder more. In addition, Christopher Zinn, Spokesman for consumer group Choice, warned cardholders of card issuers making rewards out of reach once they have upgraded the card. The RBA also revealed that there was a 50 percent jump in average spending to get a minimal reward; it currently takes $18,000 of spending on an average credit card to earn a $100 shopping voucher.

”Platinum cards, in the traditional sense, were originally designed to attract high-spending customers; these cards were previously few in number and offered both relatively generous reward points and other benefits,” RBA said. But now, these premium cards are simply a tool to generate revenue for card issuers.

According to Roy Morgan Consumer Confidence Research otherwise known as the Morgan Poll, consumer confidence was rated at 115.6 points during the weekend of March 10 and 11, 2012. This figure decreased by 3.2 points from last year. For the weekend of March 17 and 18, 2012, consumer confidence was at 109.7 points; this being a 5.9 point decrease from the previous week and is 6.5 points lower than last year’s figures and is seen as the lowest so far for 2012.

News increasing unemployment rates, bank mortgage rate increases, increasing costs of goods and utilities, and slow economic growth have led to the decline of consumer confidence after several months of optimistic increases.

Gary Morgan reports that “The fall in Consumer Confidence also comes as global oil prices reach their highest levels in nearly four years — since the start of the Global Financial Crisis. Brent Crude Oil is near $130 per barrel, not far off the record high oil price of over $147 per barrel reached in July 2008 which some say triggered the GFC.” He also added, “High oil prices act as a deflationary force across other parts of the economy as transportation costs rise and consumers have less money to spend on discretionary items. The Reserve Bank of Australia must be prepared to step in and stimulate the economy by cutting interest rates if high oil prices continue to weaken the Australian economy in the coming months.”

The Morgan’s survey concerning household finances show that only 35 per cent of the 1,148 respondents expect a better financial situation for their family within the next year; 20 per cent expect their families to be worse off. 26 per cent of the respondents say that their families are better off today than a year ago, while 34 per cent view their family’s finances as worse. 34 per cent of the respondents are optimistic about the Australian economy of the next five years while 24 per cent are expecting bad times. On the other hand, 56 per cent of the respondents say that the current situation is the best time to purchase major household items compared to 21 per cent who think otherwise.

Retail outlets are greatly affected by the decline, such as David Jones who has experienced a 19.6 per cent decline in sales in March compared to last year’s figures of $85 million. The decline has been greatly attributed to increased prevalence of internet shopping which could result to a 40 per cent decline in profits for 2012.

On this note, Myers has reportedly increased profits online and observed that the impact of online purchases to brick and mortar outlets would only be observed at the end of this year.

Sales for the retail sector in New South Wales decreased by 0.6 per cent and Victoria at 0.4 per cent. However, some areas have performed slightly better such as Queensland where a 1.5 per cent increase was experienced and Western Australia with 1 per cent.

To address this weak growth in consumer confidence, Myers has stocked on exclusive brands that could not be purchased elsewhere. Some retail outlets have restructured store operations whereas others are pushing for a legislation that would decrease the importation threshold. Currently, purchases abroad that amount to less than $1000 are not charged taxes; this makes online purchasing from international retailers more attractive to some consumers compared to paying for domestic items that are priced higher.

Australians actually owe more than $36 billion in credit card debt and the figures keep on rising. Delia Rickard, manager of MoneySmart was quoted saying “We’re encouraging people to make paying off their credit card a priority and certainly to pay more than the minimum.” Rickard also stated that in order for Australia’s 7.72 million credit card users to reduce interest accumulating on money owed, they need to start tackling their debts as soon as possible.

Credit card debt could accumulate rapidly due to high interest rates. As a matter of fact, an average credit cardholder will pay about $800 a year in interest for credit card debt with 15-20 percent interest rate. The tendency of borrowers to neglect the total amount of how much they owe plus interest can build debt that might take years to repay.

Here are some tips on how to pay off debts and avoid ballooning interests:

1. Decide on which debt should be given priority

Tackling debt can be both challenging and tricky. But if you are really determined to get a hold of your finances, start figuring out which ones to pay first. The kinds of debt that usually need to be prioritized are: tax delinquency, legal judgement, unpaid child support and credit card. Taking these debts lightly might cause future problems and even a lockup. The next types of debts to prioritise are the ones that are already in default (the types that need to be turned over to a collections agency). Loans which can be paid last are the ones with the lowest interest rate like student loans. This way, you are not only a step away from being debt-free but at the same time also saving a lot from supposed accumulation of interest rates.

2. Maintain an emergency fund

Ideally, every Aussie should have an emergency fund that could sustain them within a minimum of six months worth of living expenses. Having such guarantees stress-free mornings and confidence in times of uncertainty regarding job stability and erratic economic situations. If you are fortunate enough to already have an emergency fund then for the meantime, you can use your excess money to pay off debt with the highest interest rate and resume saving afterwards.

3. Pay more than minimum, if you can

Do not make the mistake of believing that paying your credit card’s minimum is enough. In doing so, you are slowly letting yourself drown in debt. Paying your card’s minimum does not actually make a big difference in your total debt balance. Aside from that, interests may start piling up and before you know it, your debt may have already doubled from the original amount and already requires years of repayment.

Behind this monumental cut in credit cards’ share of payment transactions are two RBA regulations that sought to level the playing field in the finance market as well as make transactions fair to cash and credit customers alike.

The RBA regulation first sought the elimination of the “no-surcharge rule”.  When the “no-surcharge rule” was in place, merchants were not permitted to charge credit card users a higher price than customers who paid with cash or debit.

Secondly, the RBA regulation enforced reduction of interchange fees, which occurs when the bank of the merchant (acquiring bank) pays the cardholder’s bank (card issuer) whenever a credit card is used.

In actuality, the cost of the interchange fee was passed on by the acquiring bank to the merchants at a profit as merchant fees. These merchant fees made credit card payments cost more than cash or debit payments.

Unfortunately, the no-surcharge rule prevented merchants from reflecting this cost differential between credit cards and other modes of payment in the prices they charged customers.

Thus merchants had a service fee sitting in their cost base that they can only recover by charging higher prices to all customers, inadvertently compelling customers who chose not to pay using credit cards to subsidise those who did pay with credit cards.

Meanwhile, the card issuers were sitting on profits from the interchange fee.  Eventually, this revenue was used to fund the cost of operating loyalty programs.  Most loyalty programs had free membership when the operations started in the mid-1990s.

Cardholders were enjoying a reward without paying anything; a scheme that was too good to be true could only encourage more members.  People started snapping up credit cards from everywhere, and eventually the number of account owners rose from 1 in every 3 Australians to 2 in every 3 a decade later.

The beauty of the credit card loyalty scheme was that all consumers were indirectly paying for the loyalty schemes, including those without credit cards and non-loyalty members. This is because the scheme was paid for by the merchants’ customers who absorbed the merchant fees in the products and services they got.

The RBA saw entire credit card scheme disadvantageous to customers and not at all consistent with its objective of making retail payments efficient with the increased cost of actual retail prices.

What worried the RBA most was the debt distress excessive credit card use was causing the people who by then had a credit card to Aussie ratio of 2 to 3.  In studying the three types of credit cardholders, the RBA saw an alarming number of Aussies suffering from credit card debt.

The three types of credit cardholders are transactors, revolvers and disorganised transactors.

Transactors are credit cardholders who always pay on time and thus never pay credit card interest, Revolvers on the other hand always pays interest, whilst Disorganised Transactors forget to pay off their debt from time to time and pay interest when they do.

The RBA estimates around 74 percent of credit card debt attract interest, which is typically generated by around two-thirds of cardholders.  This only proves that there will always be a good number of cardholders who will feel relatively high levels of financial distress.

After the RBA instituted regulations the average merchant service fees fell from 1.4 percent to 0.8 percent as a response to the RBA regulated interchange fee of 0.55 percent, which previously averaged close to 1 percent.

Fittingly, merchants now charge more for credit and charge cards after the no-surcharge rule was eliminated.

As for the banks, they now charge customers annual fees for some loyalty programs, which is not really important in the bigger scheme of fair transactions.

Credit card account ownership has remained at around two in three Australians, which is a good sign.  The RBA credit card regulations works and have led to fairer pricing signals for consumers, which enhances welfare.

PayPal Australia also launched a smartphone app that turns a mobile phone into a mobile credit card reader. The app called PayPal Here allows customers to pay using credit cards, debit cards or PayPal account, although customers would not need a PayPal account to pay by credit card.

The encrypted card reader attached to a smartphone, combined with the app PayPal Here also tracks cash transactions and allow customers to track their payments while on the move.

Merchants need only a smartphone to accept payments. PayPal Here will enable merchants to accept payments by swiping cards in the card reader, scanning cards using their phone cameras, or manually entering card information into the app.  Merchants can also send an invoice and set payment terms directly from the app.

PayPal Here has a low operating cost as it does not require a monthly account or set-up fee. Instead, merchants pay only a flat rate of 2.7 percent for card swipes and PayPal payments. Users of the service will also receive a business debit card for quick access to cash.

PayPal and its parent company, eBay Inc., have been trying to enter the offline commerce segment, as the line between online and in-store shopping blurs.  EBay CEO John Donahoe said PayPal is giving merchants the tools to be flexible and provide customers more avenues to make purchases.

“What consumers are looking for is the ability to shop anytime, anywhere,” Donahoe said.

PayPal Here is available for the iPhone and a version for Android devices will be out soon. Although PayPal Here does not have an app for Apple’s iPad, the issue may be irrelevant as the iPhone version technically works with the iPad, as do other iPhone apps.

Comparing PayPal Here with the other smartphone compatible electronic payment services like Square, PayPal has the advantage of “world-class fraud management capabilities.”

PayPal Here’s merchant flat rate fee of 2.7 percent is also slightly lower than Square’s 2.75 percent transaction fee.

Another difference is that Square is an independent service, while PayPal Here transactions are deposited into the associated PayPal account. This makes PayPal Here disbursement instantly available, although moving funds to a separate bank account is a manual process.

Square has been very popular in America,  due to the low operating cost involved (2.75 percent of the transaction cost) and the fact that Square is readily available to those who may not otherwise qualify for a merchant terminal or able to justify the costs.

Square has plans to launch the service outside of the US, but PayPal has beaten them to the punch.  PayPal Here works much the same way as Square: a small reader attaches to the device, and a dedicated app processes the transaction.

PayPal Here, unlike Square, is already present in the US, Canada, Australia and Hong Kong.   And unlike Square, PayPal Here also accepts debit cards as well as facilitates direct PayPal transfers.

What this all means is that cash payments will inevitably follow the path of cheque payments – a niche segment of the financial world – as more and more people take to the ever increasing world of electronic payment system and cards.

Shoppers can buy a variety of products online from food to clothing to electronic equipments; everything can be bought online – even furnitures and airline tickets. However, not all online shops offer cheaper goods, so bargain hunters must be patient and clever in their search for the best buy. And unlike retail shops where a shopper has to walk from store to store in their bargain hunt, online bargain hunting is simply done with a click of a button.

Knowing which online shops offer the best price for a particular type of product comes with experience in online bargain hunting. For instance, US boasts of amazon.com where online shoppers can find almost anything from books to clothing to entertainment products; amazon.com is the king of online sales in the US. Although Australia does not have something as big as amazon.com, online stores such as MyCatwalk, oo.com.au, rushfaster, online Shopping USA, kogan, shopping square, Deals Direct, BigPond Shopping, carsales.com.au, and eBay.com.au sell specialised products that may offer competitive prices over traditional retail shops.

For those opting to shop overseas, there may be shops that pose the question of reliability for online shoppers. In cases like these, a quick Google search on the merchant may give shoppers a background about the merchant. Take time to review customer feedback on the site and if the feedback sounds too good to be true then most likely it is not. Online shoppers must be careful at all times because as much as online shopping provides a lot of benefits for its shoppers, fraudsters are also just around the corner waiting for their prey.

In this regard, caution in the method of payment is advised. The most common method of payment for online transactions is through credit cards or debit cards. Credit card security for online transactions is guaranteed by Visa and MasterCard, just look for the Verified by Visa and MasterCard SecureCode signs. Another secure way of online payment is through PayPal plus a shopper’s credit card can be connected to their PayPal account for easier management of their online purchases and spending. For online shoppers who are wary about giving out their bank account or credit card details online, PayPal is their best option because merchants only see the shopper’s email address and delivery address for that matter and everything else is kept private. Similar to credit cards’ purchase protection cover, Paypal also offers Buyer Protection.

These methods of payment make online shopping so easy that shoppers may overlook their credit cards’ currency conversion commissions particularly for those shopping overseas. Currently, 28 Degrees Mastercard, NAB Gold Bankning Debit Card and Citibank Plus Visa Debit offer no charge on foreign currency conversions, whilst other banks charge sky-high on foreign currency commission. On the other hand, some credit unions charge as high as 3.65 percent on each international purchase. Consequently, shoppers are urged to check their credit card’s foreign conversion policy before making any overseas purchase.

It was a common practice by the credit card company to charges an additional 6 percentage points in interest to customers who miss three or more payments in a year or have a single repayment outstanding for more than three months.

The Australian Securities and Investments Commission (ASIC) said it was concerned Amex policy was potentially in conflict with the National Credit Code because it charged the extra interest on the entire card balance, and applied the penalty for a minimum of 12 months, even after the late amount was repaid.

It should be noted that this practice applied to holders of credit cards issued directly by Amex, not the customers of its partners, such as David Jones or the big banks.

Had Amex limited charges to the outstanding amount and removed the penalty after repayment, ASIC would have overruled customer complaints. Amex now has to revise its interest rate practice.

However, Amex stopped short of offering customers hit by the penalty rate a refund, saying it still believed the slug complied with Australian law.  The credit card company declined to say how many customers were hit by the penalty rate, although ASIC estimates that 7.9 percent of cards directly issued by Amex were affected.

As a result of the changes, affected Amex customers will receive a reduction in interest rate of up to 6 percent, dropping their interest rate to the industry average of 20.74 percent. The changes for affected customers started 28 February 2012 with all affected customers having their interest rate reduced to their normal rate by the end of March 2012.

ASIC Commissioner Peter Kell said “ASIC considers that the policy intent of the National Credit Code is to limit the level of increased charges which may be imposed on a borrower in default, and ASIC welcomes AMEX’s agreement to change its interest rate practice.”

This event should remind all customers that a creditor’s interpretation of terms and conditions can be totally different from that of the regulators.  Customers should always be vigilant with the terms of their credit card providers, and when in doubt give ASIC a call.

Customers should always read the fine print of the creditor’s terms and conditions.  Proving oneself to be right is one thing, getting the refund from your creditor is another ball game all together.  For all intents and purposes, Amex did not admit to any wrong doing but rather it only agreed to work within industry standards. Thus affected customers will not be offered a refund.

Customers who chose to spend beyond their financial capability and not pay their bills on time may get very little sympathy when they shout ‘bloody murder’ when hit with credit card charges. Remember the old saying ‘what goes around comes around’ thus if you abuse your credit card, your credit card provider will abuse you in return.

Customers should always use their credit card within the capacity of their own finances and remember to live within their means.