Credit card changes likely in 2015


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American consumers are turning away from credit cards, and that could have big implications for the way we spend.

A much higher percentage of Americans are now using debit cards instead of credit cards for many of their purchases, says Steven J.J. Weisman, senior lecturer in the department of law, tax and financial planning at Bentley University in Waltham, Massachusetts.

Other credit card trends are becoming apparent.

For example, millennials are less likely than their forebears to use credit cards. And millions of Americans remain concerned about the safety of their payment information in the wake of numerous data breaches in 2014.

What does all this mean for the credit card industry and for America’s overall economy in 2015? Weisman offers his thoughts in the following interview.

What are the implications for retailers and the overall economy if millennials continue to not use credit cards?

As Yogi Berra used to say, “Predicting is hard, particularly about the future.” But if, indeed, millennials continue to refrain from using credit cards, it could be anticipated that consumer spending overall will suffer, which could hurt the economy.

On the other hand, it could well turn out that prudent money management by millennials, and the responsible carrying of less debt, could improve the economy.

What are some other trends you are seeing around credit card use? What is the significance of such trends?

Far more consumers are using their debit cards than their credit cards, while reserving their credit card use for larger purchases. This is the continuing of a trend that began in 2000. The use of cash or checks for payments continues to decline.

The trend toward the use of debit cards, however, may start to reverse. The consumer protection laws pertaining to fraudulent use of debit cards are much less protective of the consumer than the laws protecting consumers in the event of fraudulent use of a credit card.

In the light of continuing data breaches at major retailers and the theft of credit card and debit card information, consumers are significantly better protected in the event of such a breach if they used a credit card rather than a debit card.

Concern about data breaches will also encourage the implementation of smart EMV (Europay, MasterCard and Visa) credit cards, which are less susceptible to retail data breaches. Present regulations require retailers to switch their credit card processors to work with the EMV cards by October of 2015.

However, some retailers such as Wal-Mart are switching earlier, and credit card companies are creating EMV cards and providing them either on demand or when a new card is to be issued to the consumer.

(The) coupling of credit cards with mobile payment systems such as Apple Pay will continue to increase, as well. We will continue to see more RFID (radio-frequency identification) contactless cards used, where the card is merely waved at a reading machine rather than the usual swiping. However, security issues involved with this type of card may well slow its consumer acceptance.

The trend away from magnetic-strip cards and toward “chip” cards is picking up steam. How will this change impact the average consumer and his or her shopping experience? Do you anticipate a smooth transition, or will it be a rocky road?

The transition to smart EMV cards will not be seamless. We have already seen some unexpected security issues with smart EMV cards being hacked. However, the switch should dramatically reduce the risk of the hackings of retailers’ point-of-sale machines, which, in turn, should bring about greater consumer confidence.

Training of employees to handle the new transactions in a safe and secure manner will be critical to the smart EMV cards being an effective method of protecting from fraud. The experience in Europe and elsewhere promises that smart EMV cards will bring about much increased security from the present magnetic-strip card.

Credit card issuers are always trying to get an edge by offering new products. What are some innovations you are seeing in terms of the types of credit cards that are now being offered to the public?

The competition among credit card companies for customers, particularly high-worth, high-spending customers, will continue to escalate, with companies becoming more creative with their perks, including providing services such as credit scores.

Another trend is that companies are becoming more involved with offering point programs where the card user earns points for each purchase that can be exchanged for products, trips or other uses. Cards offering cash back as a perk for card usage is becoming less popular with credit card companies.

Also, credit card companies will offer greater personal service, such as concierge services and financial planning services, to entice customers and provide a greater personal relationship with the customer.

What are some of the other major trends related to credit cards that you expect to see in 2015?

The biggest trends for 2015 will be an emphasis on security of transactions, both to reduce losses to the credit card companies and to bring back consumer confidence in the wake of a year of major data breaches.

I also expect the trend toward more expensive platinum-type cards with greater perks and greater personal service. Overall, as the economy continues to be strong, greater consumer spending through credit cards can be expected, as well.