Consumers Use More Debit Cards
The recession has impacted the American consumer psyche so deeply that many are shying away from credit all together. While those that have lost their jobs may feel a larger need for credit during a time of lower income, they aren’t the type of customers that banks want to maintain either. Credit lines have dropped dramatically for those that might need it while those that still have jobs are seeing their rates rise, regardless of whether a payment was late or not. The level of anxiety and financial stress has caused many people to begin to rethink their credit habits, by choosing debit cards and different kinds of savings accounts as new ways to manage their expenses, without incurring future debt.
Major credit card companies like Visa and MasterCard have seen an increase in debit card transactions in their networks, versus the same number as of last year. In fact, Visa reported over half of their purchase volume in the first quarter of 2009 was due to debit card transactions. In addition, the amount of monies spends continues to decrease as American consumers try to hold onto every dollar in the face of uncertain job security, a loss of home equity, and stricter lending guidelines. This is good news for the American consumer, in that their savings rate is the highest in years, however, it’s bad news for credit card companies which are seeing a decrease in business.
Debit cards offer the convenience of a credit card, without incurring additional debt on the part of the consumer. They are usually tied to a checking account, with a way to transfer funds from a savings account into it. You can use overdraft protection on a checking account with debit privileges, but in the end, it might cost more than using a credit card as there is a fee ranging from $30 to $40 for each overdraft. However, the fees are automatically withdrawn from the account and there is no revolving debt incurred, which seems to be the main reason consumers are avoiding using their credit cards for now.
