People are ditching credit cards for debit, gift and prepaid cards, according to a new study by Javelin Strategy & Research. The study says the pain of the recession has produced a risk-averse, cash-hoarding "cautious consumer" and that more consumers are paying cash instead of incurring future debt with plastic.
The report, "Payment Card Issuer Strategies 2010," finds that consumer credit-card use is at an all-time low because of alternatives like "reloadable" prepaid cards. Credit card use has decreased 31% between 2007 and 2009 (from above 85% to 56% in 2009), and if the trend continues, credit card use will fall below 50% by year's end.
Even among those 11% who say they have improved their ability to salt away money, the study says 46% are also using their credit cards less often and 51% have decreased their spending on discretionary goods, such as entertainment, travel, luxury items and cars.
Per the firm, California and Texas -- which represent 20% of the U.S. population -- have seen major credit card use declines with the collapse of the housing market and rising unemployment rates. The study says when consumers do choose a credit card, the focus is first on saving money. Among respondents, the most highly-ranked offering is "no annual fee," named as the top reason for choosing a card by 80% of respondents. That is followed by low interest rates and then rewards.
"The recent passage of widespread financial reform targeting payment cards is not just impacting the way consumers behave, but is transforming the entire payments landscape," says Beth Robertson, director of payments research, Javelin Strategy & Research, in the study. She says that in addition to rethinking their debit and credit card portfolios and prepaid business, the financial-services industry should "innovate, finding new payment options or structural alternatives that will drive revenue."
The survey is from a random sample of 5,211 people surveyed in March, and from surveys last November.