2011 Report on Credit Card Usage Statistics:  Is Love for Plastic Still Fantastic?

People still generally don’t leave home without it, but in the wake of the recession of 2008-2010, the credit card today isn’t quite as popular as it once was. Still, it remains a major force in the U.S. economy. Below are some facts and figures that paint a picture of credit cards in America–in terms of both the credit industry itself, and the impact of credit cards on consumers.

Scope of the credit card market

It’s become popular to demonize the credit card industry, but that’s not entirely fair. Yes, some rates and fees can seem excessive, and yes, aggressive marketing tactics can make it all too easy for people to get hooked on debt. Still, credit cards play a vital role in the modern economy. They help provide liquidity–the convenient and timely access to capital that facilitates day-to-day transactions. Capitalism could exist without credit cards, but only at a much slower pace.

How extensive is the role of credit cards in modern society? Consider the following numbers:

• The U.S. Census Bureau estimates that there are 181 million credit card holders in the United States. This represents approximately 77 percent of the adult population of the U.S.
• According to Census Bureau estimates, there are more than 1.4 billion credit cards currently in circulation in the U.S., whose 2010 population is roughly 308.8 million.
• These figures mean that there are about 4.5 credit cards for every man, woman and child in the United States, or an average of 7.7 credit cards for each of the 181 million people who actually hold credit cards.
• The Federal Reserve reports that credit cards are used more than 20 billion times a year in the U.S., with the total value of these transactions at about $1.9 trillion.
• Based on the number of transactions and the number of credit card holders, the average card holder uses a credit card 119 times a year, for transactions averaging $88 apiece. This comes to an average annual total of about $10,500 in credit card purchases.

In all, annual credit card purchase volume is equivalent to 12.9 percent of U.S. Gross Domestic Product.

Major players in the credit card market

There are many players in the credit card market, but there are a handful of clear market share leaders. Based on projections from the Nilson Report as reported by the U.S. Census Bureau, here is how the credit card market looked in 2010:

• Three companies command 86 percent of all U.S. credit card purchase volume. Visa is the clear front-runner with an estimated 38.5 percent of annual purchase volume, followed by a close race for second and third place with MasterCard at 24.3 percent and American Express at 23.2 percent.
• Other significant players in the credit card market include Discover, various store-issued credit cards, and various oil company credit cards.
• Visa has the most U.S. cardholders at 111 million, followed by MasterCard at 98 million.
• American Express has a much lower number of card holders, but compensates for it with an up-market focus. At 44 million U.S. cardholders, American Express not only trails Visa and MasterCard, but is edged out by Discover at 45 million. However, in terms of average annual purchase volume, American Express transactions total roughly $11,300 per card holder, compared with Visa at $7,300, MasterCard at $5,250, and Discover at $2,500.
• Store and oil/gas credit card categories each average just over $1,000 in annual card holder purchase volume.
• Relative to their shares of purchase volume, Visa and MasterCard each have a disproportionate share of the debt outstanding, with Visa at 41.8 percent and MasterCard at 30.6 percent. In dollar terms, these portions of debt outstanding represent $388 billion and $284 billion, respectively.

A high volume of outstanding debt can be good for business in a strong economy, because it can allow the credit card company to earn more in interest charges. However, when default rates rise as they did in 2008-2010, high levels of debt can quickly become a major liability.

Regulatory trends

For the credit card industry, 2010 was largely a year of coming to terms with the requirements of 2009’s Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. Provisions of the CARD Act included restrictions on some marketing practices, and limitations on the circumstances under which a card company can raise interest rates.

In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contained one provision with ominous implications for credit card companies. The Federal Reserve will now have the responsibility of setting limits on the interchange fees charged by credit card companies to merchants for transactions using the debit cards they issue.

While this rule only applies to debit transactions, it will affect many credit card companies because they also issue debit cards. Also, if debit interchange fees are reduced, it may increase the merchant bias towards debit card transactions. Credit card interchange fees are generally higher than debit card interchange fees, and merchants often respond to this by having their customer interface technology set up to default to debit transactions. This may already have affected consumer behavior with respect to credit and debit card transactions, as discussed below.

Consumer trends

While credit cards remain a popular payment option for consumers, two consumer trends are working to dampen credit card volume: a broad movement towards debt reduction, and greater use of alternative payment methods. Some details:

• The Federal Reserve data on revolving consumer debt goes back to 1968. The amount of revolving consumer debt outstanding rose during each year from 1968 through 2008. In 2009, for the first time on record, revolving consumer debt declined. Through October 2010, revolving consumer debt was on track to decline for a second year in a row. Since peaking at nearly $974 billion in August 2008, revolving consumer debt outstanding had declined to just over $800 billion by October 2010.
• Besides reducing their debt loads, consumers are increasingly using alternatives to credit cards. From 2006 to 2009, credit card usage declined in terms of the number of transactions, the total dollar value, and the percentage share of non-cash payments. Meanwhile, debit cards and prepaid cards made substantial gains in all three metrics. While credit card companies can capture a significant share of these alternative markets, this transition is likely to alter the marketing and profitability status quo of card companies.

Regulatory targeting, a soft economy and competition from alternatives have created some headwinds for credit cards, but it is fair to say these headwinds challenge, rather than threaten, the credit card industry. Things within the industry may change as a result–a shakeout of weaker players, perhaps, and a renewed focus on the most profitable customers–but overall the credit card industry remains a major player in the U.S. economy.

Published 01/10/11