COBA reveals what's driving risky spending

Cashless payment methods are driving risky spending habits, particularly among younger consumers and those in financial difficulty, the Customer Owned Banking Association (COBA) says.

The peak body for mutual banks, credit unions and building societies commissioned a study in June to explore consumer spending. Conducted by Essential Research, it comes ahead of the introduction of a new industry code of practice, offering increased protections for vulnerable or disadvantaged customers.

COBA said the data confirmed a move away from cash as predominant payment method, with tap-and-go options used by 77% of consumers.

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This trend was “disconnecting consumers from the value of money” and drove risky spending habits, particularly among those already struggling financially, it said.

The results identified vulnerabilities among consumers who were struggling or in serious financial difficulty, with 44% more likely to overspend, compared to 35% of those who were financially comfortable or secure. These consumers also found it more difficult to keep track of their spending or were hesitant to use tap-and-go options, than those who were better off, COBA said.

Young consumers aged 18-34 agreed that tap-and-go options made it easier to overspend (46%), harder to track spending (42%) and hesitate to use tap-and-go options (42%), compared to those over the age of 55.

Use of buy now pay later services was more frequent among consumers who were already struggling with their finances, the results showed, with just over one quarter (29%) using the service at least once a month. Younger spenders were also more likely to use the service, with 19% using it at least once a week, compared to 2% of older people.

COBA CEO Michael Lawrence (pictured above) said the new code of practice for the customer-owned banking industry would come into effect from October 31. It would provide additional protections for vulnerable consumers, including those who are struggling financially.

“As behaviours change through technology use, it is important that we, as customer-owned banks, remain across what these behavioural changes mean for customers’ financial health,” Lawrence said.

While digital payment services carry customer benefits, including a frictionless and convenient experience, as with any new technology, it is important to understand the impacts on consumer behavior, and to support the most vulnerable, he said.

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Lawrence said the new code expands protections for vulnerable consumers, and requires customer-owned banks to take reasonable steps to:

• Make banking services accessible for individual customers in the areas in which they operate, including older customers and Indigenous people.
• Adapt customer service standards where reasonably practicable, and take extra care of customers experiencing vulnerable circumstances, including in circumstances involving disability, elder abuse, or domestic violence.

“Customer-owned banks serve more than five million Australians and are committed to ensuring customers have access to services, products, and advice that have been built around a deeper understanding of nuanced vulnerabilities or financial challenges,” Lawrence said.