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Javelin report: Credit card use down

By Leslie McFadden ·
Friday, September 10, 2010
Posted: 11 am ET

Credit card use dropped to an all-time low of 56 percent in 2009, down from 87 percent in 2007, says a new report from Javelin Strategy & Research, in Pleasanton, Calif. The report, titled "The Rise of the Cautious Consumer," notes that other payment methods, such as debit cards and prepaid reloadable cards, have grown in popularity during the recession. Debit card use outpaced credit card payment volume in 2009 for the first time, and debit cards are currently used more than credit cards for in-store purchases. If the trend continues unchecked, the firm warns that credit card use will drop below 50 percent in 2010.

The findings are based on a random-sample panel of 3,294 people surveyed in November 2009, along with another random-sample panel of 5,211 people from March 2010 and a telephone survey of 5,000 consumers conducted in November 2009.

"This shift away from credit cards is both profound and permanent," says James Van Dyke, president and founder of Javelin Strategy & Research. Payment card issuers are "reshuffling the whole deck" in terms of product offerings, he says.

One prominent driver behind the move away from credit cards is demographic shifts. Younger consumers have a preference for "real time" payment methods, such as debit cards, as opposed to the pay-later model of credit cards.

Prepaid, reloadable cards, which weren't affected by recent regulations such as the Credit CARD Act of 2009 or the Dodd-Frank Act, also grew in popularity during the recession.

To make up for lost revenue, Van Dyke says payment card issuers have to get creative. An example he gave was that banks could charge customers a fee to expedite a payment to a biller to avoid a late fee or offer anti-virus software through a security vendor.

Other changes in the marketplace that consumers could see from card issuers, according to the report:

  • A resurgence in secured credit cards.
  • Increased marketing of prepaid  cards.
  • Merchant-based coupons and promotions to encourage card spending.
  • More control features on cards.

"We will see consumers -- we believe of all types -- gravitating toward payment methods that put them in charge," Van Dyke says. Currently, there are few programs such as MasterCard's inControl that allow users to set spending controls on their cards. "Nobody has any more than about 2 percent of what we'll see in the future."

As issuers rethink their credit card offers, it seems they will have to keep in mind consumers' aversion to fees. The study found that "no annual fee" was the most important feature for a new credit card to have, followed by the interest rates and rewards program.

Have you cut back on credit card usage during the recession?

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