Credit card comeback confirmed
We recently reported (see Using your credit cards more? Payback time’s coming) on rising credit card use. Data from the Federal Reserve showed that in May revolving credit (which comprises almost wholly credit card balances) jumped at an annualized rate of 9.3 percent.
Credit card comeback looks real
Of course, there was a very real chance that the Fed’s numbers were a statistical freak and that things would return to normal in June. But new figures for that month from First Data’s SpendTrend tracking study suggest that may not be the case.
SpendTrend monitors consumer spending on a same-store basis, and breaks down results by the payment method chosen. In June, the study found overall spending rose 7.1 percent (it was 6.0 percent in May), but that breakdown was particularly interesting:
- Prepaid cards: +12.7 percent
- Credit cards: +8.8 percent
- Signature debit: +6.9 percent
- PIN debit: +4.4 percent
- Check: -6.6 percent
The rise in the use of prepaid cards is obviously important, but the fact it’s a relatively new product, moving up from a low base, means big increases can be expected. What may be more signifcant is the rise in credit card purchases, especially compared with those for debit cards and checks.
Why the change?
So what’s happening? In a statement, First Data’s senior vice-president for information and analytics solutions Krish Mantripragada seemed clear in his view:
The combination of increased hiring, a snapback in housing markets and rising equity prices are underpinning Americans’ confidence and encouraging them to spend. Continued growth in credit card dollar volume suggests increased demand for credit leading to purchases of higher ticket and costlier items.
If Mr. Mantripragada is right, the Fed’s figures could be the start of a trend, and not merely a statistical blip.
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