Rumor has it that credit cards are dead if you believe the numerous reports which indicated this trend as a response to the economic falloff. People became wary of increasing their debt and elected to keep their credit cards locked in their wallet rather than use them for purchases.
While there is a certain amount of truth to this, it would be a mistake to assume that there is no growth in the credit card industry. In fact, it’s a mistake to assume that people are wary of increasing their debt because the opposite appears to be true. According to a June 2014 article from Reuters, the Federal Reserve reported that in April total consumer debt has an annual growth rate of 10.2% from $26.85 billion to $3.18 trillion. That is the fastest reported growth rate since July 2011! Reuters also reported that totals for revolving credit rose $8.8 billion, which was the single biggest increase in revolving debt since November 2007.
Perhaps more telling than any other single factor is this that consumers still prefers using their credit cards over their debit cards. The Federal Reserve reports that credit cards are more prevalent than any other general purpose card. According to an article appearing in the ABA Banking Journal, 334 million credit cards were in force in 2012 which means of the 776 million cards issued, activated and not expired, 43% of them were credit cards. Debit cards ran second at 37% and prepaid cards were third at 20% of the total. Even approval rates are on the rise, 86% of applicants rated as superprime get approved for a credit card and 59% of those applicants rated as prime. These rates are the industry’s highest since 2008.
Additionally, although consumers may indeed be electing not to use their credit cards for every purchase, new methods of credit card use are opening for consumers. Credit cards are the primary means of purchase when consumers are connecting their cards to other emerging payment forms such as mobile wallets, wearables, toll devices and more.
Although the clear consumer benefit of credit cards continues to drive strong usage, we are seeing a tendency for consumers to pay down or pay off their balances which brings its own challenges. Credit Cards continue to be a very high performing asset, but it’s important to understand this trend and design solutions to maximize interchange and fee income in the face of declining interest income. It’s more important than ever to have a competitive rewards program and an offer tailored to your demographic in order to ensure “top of wallet” (whether physical or virtual) status.
As payment technologies continue to advance, payment form factors may change but this should not be misinterpreted as the fading of credit cards from the payment horizon. Consumers rely on their credit card accounts and as new payment technologies emerge consumer acceptance will be predicated on the ability to connect to those underlying credit card accounts.