Eva Norlyk Smith, Ph.D.
If there’s one positive outcome of the credit crisis, it is that it has prompted many consumers to cut back on credit card usage and take greater control of their credit card debt.
According to recently released numbers from the Commerce Department, retail sales increased for the fourth month in a row in February. However, unlike the pre-credit crisis era, spending was largely driven by cash and debit cards, not by credit cards, according to the consumer research company America’s Research Group (ARG). According to ARG, 41 percent of sales were paid in cash and 37.5 percent by debit cards, while credit cards accounted for only 16 percent of sales. In past years, credit cards accounted for almost 40 percent of sales.
Even online shoppers are increasingly replacing credit cards with other forms of payments, including debit cards, according to a recent report from Javelin Strategy and Research. Javelin Strategy and Research predicts that online purchases made with major credit cards will decline from a peak of 54.8 percent in 2008 to 39 percent by 2014, as other forms of online payment services, such as PayPal become more popular. Debit cards are expected to make up 26 percent of online sales by 2014.
According to Javelin, a number of different factors contribute to consumers’ hesitancy to use plastic. In today’s uncertain economic climate, many consumers feel safer spending money they have as opposed to taking on credit card debt. According to the report, 48 percent of consumers report having cut back on credit card spending.
The drop in online credit card payments is also driven by the growing number of alternative payment options available. PayPal and Google Checkout, for example, allow consumers to pay with funds electronically directed from a personal bank account. Last year, payment services such as PayPal mediated 51 percent of internet purchases.
Meanwhile, online shopping continues to increase its market share over traditional retail sales. In 2009, e -commerce grew 10.8 percent, with 63 percent of U.S. consumers reporting that they had made online purchases in the past year. By 2014, Javelin predicts the number of internet shoppers will have risen to 78 percent, meaning that almost eight out of every ten U.S. consumers will be doing at least some of their shopping online.
