Quit Credit Cards in Australia: Installment Loans Dying Out on ME Bank


Large banks generally have operational advantages over smaller ones. Big banks can securitize debt and reinvest. Large banks tend to be more risk tolerant and can usually manage to resolve a collection issue. Here is the story of an Australian bank that just threw in the towel on its credit card business, reported by the Australian Financial Review:

  • Announcing a 32.8% drop in net income with a non-recurring $ 14.4 million impairment loss on its credit card business, ME sought to justify its “decision to stop investing in a new credit card platform and associated new credit card products “on the basis that,” among other factors, it was not economically possible to continue due to the expectation that the credit card market would suffer a significant disruption ”.

Let’s break this down. ME Bank is an Australian online bank with assets of AU $ 27 billion. It is classified as a direct bank, often referred to as a branchless or internet-only bank. Recent credit losses caused a loss of $ 14 million, and now the bank is pulling out of credit cards. As the article mentions, it’s not just credit card losses, and installment loans have taken good business away from operating credit cards.

The Sydney Morning Herald dug deeper on the issue of the credit card / installment loan:

  • “We think there is a massive structural change going on in the credit card market and we don’t think this is where we want to invest,” McPhee said.
  • ME had planned to introduce more credit card products, and in particular rewards cards, in addition to its only current low rate card. But Mr McPhee said the increase in buy now, pay later products like Afterpay and Zip meant it was no longer a workable option.
  • “If you think about it in a business strategy context, we have limited resources, it’s a pretty crowded space, and we’re seeing a drop in usage due to the buy now, pay later market,” Mr. McPhee.
  • The company was halfway through the project when it decided to shut down, resulting in an after-tax depreciation of $ 14.4 million.
  • On an underlying basis, which eliminates one-time losses such as credit card losses and IT costs, the company’s after-tax profit was $ 99.8 million, up 3% compared to the previous year.

And, Mozo, a source of consumer-focused information in Australia Remarks:

  • ME Bank has abandoned its plan to expand its credit card range, with a growing frenzy surrounding the Australian buy now, pay later sector being cited as a key factor in this decision.
  • Last September, ME CEO Jamie McPhee announced that the bank would launch more credit card products, especially rewards cards, in addition to its current low rate. ME frank credit card.
  • However, those plans have since been scrapped, with McPhee saying ME’s investment in credit cards was no longer feasible given the rapid spread of buy now, later payment services, including fintechs. After payment and Zipper.
  • In fact, Afterpay statistics from earlier this year revealed fewer Australian millennials now use credit cards buy and spend – only 41% own plastic, up from 58% in 2002.

Here are the takeaways: Chez Mercator recent coverage in the installment loan market, we noted that several large card companies including American Express, Chase and Citi have their installment loan variants, but this is not a new strategy. You can get the same result by overpaying the minimum due.

Will this start a movement for small issuers to withdraw from the card business? It remains to be seen, but when you compare the profit potential and market presence, it is difficult for a small town bank to compete with a global credit card lender.

The answer is simple: Economies of scale drive the credit card business.

Preview by Brian riley, Director, Credit Advisory Service at Mercator Advisory Group

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