A swing back to credit?

The world of payments continues its dizzying evolution.  According to the Nilson Report (a payments industry newsletter), debit card spending lost market share to credit cards in the U.S., reversing a trend of more than 20 years.

Some of the reason for this can of course be traced to the effects of the Dodd-Frank Act with its caps on debit card transaction fees and the resultant devaluation of many debit card rewards platforms.  But there are other factors at play as well.

In spite of continued uncertainty in the economy and consumers’ ongoing debt aversion, interest in credit cards is greater than it’s ever been, reaching levels well above those seen prior to the financial meltdown according to Google.  And in an effort to boost revenue, many banks are more heavily promoting credit cards in the wake of the recent significant drop off in the mortgage re-fi boom.

Credit card issuing can be very profitable and although card fees are coming under federal scrutiny, no debit-like caps appear on the immediate horizon.  And cards are a natural, low-barrier cross-sell opportunity for existing bank clients.  Credit card reward value propositions are also morphing, becoming more flexible and robust – especially with cash back options – in response to heightened competition.

Interestingly, according to Equifax, store-branded cards are actually generating more new accounts than are bank-issued cards.  This may be a sign that consumers are considering a wider range of options when it comes to using credit for their personal finances.

This all may be an indication that consumer confidence is in fact on the rise or it may be more a lagging correction in an ever-changing payments market.  Whatever the case, it should be on financial marketers’ radar for 2014.

References:

Nilson Report – www.nilsonreport.com/
Google reference from Financial Brand – http://thefinancialbrand.com/35019/google-trends-in-banking-2013/
Equifax – www.equifax.com