Credit card balances drop as credit rises
June 1, 2012
Consumers are relying less on credit, highlighting attempts to be more fiscally responsible.
According to a recent survey by Equifax, credit card balances have fallen 28 percent since their peak in 2009. The amount that consumers are carrying on their cards has declined even as credit limits have increased. As a way to attract or keep customers, banks have raised the limits of many of their offerings.
What makes the decrease in balances unusual is that consumers continue to use credit cards. More than 40 percent of Americans use plastic to cover expenses, according to a survey by Demos. That represents more than 609 million cards, making credit cards a reliable source for customer purchases.
The availability of online sales and mobile purchases has made credit and debit cards a favorable method of paying. Many companies now operate multichannel marketing strategies designed to increase online sales. To help facilitate these transactions, firms need to closely examine their online payment systems.
Online sales are likely to increase during the next few years. Consumers like the ease ecommerce channels provide in conducting transactions. Digital payments make it easy for them to make purchases from websites. However, the trend of decreased balances shows that consumers are looking for cost-saving measures. Fewer card holders want to carry large balances, which will make them hesitant to make expensive purchases. This could impact pricing as companies look to capture more sales at lower profit margins.
Consumers enjoy the flexibility and convenience of credit and are likely to continue increasing their use as technology expands purchasing channels. This will open additional opportunities for businesses to conduct their own purchases through credit card payment systems.
Credit card companies are likely to target their merchant networks, providing additional incentives or savings for retailers as a way to expand their offerings to customers. The Equifax report showed that the number of retail cards fell 22 percent from their peak as fewer consumers were looking for the savings they offered at specific retailers.
The increased rate at which consumers are repaying their balances could potentially improve the cash flow for companies. With fewer users maintaining high balances, banks will likely see an increase in the speed with which they can reimburse businesses, making credit cards even more attractive. Companies that improve the efficiency of their online purchasing system may see large returns in their sales.