Giving Credit Its Due

Categories: Bank Issuers,Banks,blog,credit cards,mastercard,Visa

Posted on January 25, 2018 by

Rumors about the death of credit and credit card payments seem greatly exaggerated. Just ask the Federal Reserve.

  • New data from the Fed indicates that credit card payments are on an upswing. The total number of such payments made in the U.S. rose by a healthy 10.2 percent in 2016 over 2015, reaching 37.3 billion (total value, $3.27 trillion) and eclipsing the growth of other card types. This, according to the Fed, is comparable with an annual 8.1 percent increase in the number of credit card payments executed in 2012, 2013, 2014, and 2015 and was boosted by continued strong growth in the number of remote credit card payments.

But there’s more. The volume of remote general purpose credit card payments, including those made during online shopping and to cover bills, increased at a rate of 16.6 percent in 2016. More broadly, remote payments in 2016 represented 22.2 percent of all general-purpose credit and prepaid debit card payments, up 1.5 percentage points from an estimated 20.7 percent in 2015. By value, remote payments represented 44.0 percent of all general-purpose card payments, a slight increase from an estimated 42.9 percent in 2015.

In a related vein, Visa and Mastercard appear to have marked—if not massive–growth potential, even in the most developed markets. If you’ll pardon the pun, some of the credit here goes to changes in the retail landscape, specifically the increasing popularity of remote (card-not-present) transactions. According to the Fed, the rate of such transactions grew faster than in-person (card present) debit and credit card payments in 2016. The total transaction value of remote payments made with general purpose credit cards and non-prepaid debit cards rose by a respective 9.6 percent and 8.9 percent that year, while growth in remote transactions made with general purpose credit cards and non-prepaid debit cards totaled 16.6 percent and 14.9 percent, respectively.

Moreover, at its 2017 Investor Day, Visa claimed to own a 47 percent share of online spending on personal consumption expenditures (PCE) in the U.S. Its estimated share of in-person PCE expenditures was 23 percent.

Loosening credit conditions and a competitive credit card market are playing a role here as well. Consider this: Almost a decade after the financial crisis, banks have resumed offering credit card accounts to consumers whose credit is far from perfect. Statistics from Liberty Street Economics indicate that consumers whose FICO scores stand at 659 or lower opened about 7.7 million more credit card accounts than they closed in 2016, with new account openings surpassing account closures for the third consecutive year.

Finally, private-label cards are losing out to co-branded Visa and Mastercard cards. According to a report in The Motley Fool, private-label store cards issued by retailers through such players as Synchrony Financial and Alliance Data Systems may be winning small transactions. However, they are losing their share of larger transactions given that the total value of payments made with these cards declined by 1.6 percent in 2016. Heavy-hitting merchants that might have otherwise launched their own private-label cards instead rolled out co-branded cards. Costco with its Anywhere Visa card, is one example. And for its part, Amazon partnered with Visa on its Prime Rewards Visa card, an alternative to its private-label store card issued by Synchrony Financial.

Say what you will about cash being king. Credit, too, reigns supreme.

Author: E&S Consulting