The economic downturn has resulted in fewer consumers using credit cards. The number of consumers actively used credit cards dropped to 56% last year, down 31 percentage points from 2007. Predictions for 2010 indicate further drops, with only 45% of consumers using credit cards for purchases.
Consumers are now using debit cards as their preferred payment method. Debit card issuers, however, are being hit with big revenue losses on debit card portfolios.
Recent regulation, including provisions allowing the Federal Reserve authority to regulate debit card interchange rates are expected drive profits lower. This comes on top of earlier legislation which cut fees banks could charge for overdrafts on debit cards. The double whammy could mean a loss of as much as $12 in interchange and overdraft fee income. .
Banks are trying to beef up card programs by marketing cards differently. Expect to see emphasis on special rewards cards for high income consumers. And rewards will continue to be popular to incentivize buyers to use cards for everyday purchases.
Still, don’t feel too sorry for the banks. The behemoth financial institutions that issue the bulk of cards had stellar years, thanks to the stimulus package funded by taxpayers.
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