A new year has started and there are things to have in mind for the credit card market in the US. If you are thinking about getting a new credit card for this year or changing the ones that you have you should have in mind the different factors that may impact this market.
The higher rates expected by the fed; the amount of money that the financial institutions are able to lend but also the financial and technological progress that may impact the products. In this article we are going to talk about the credit card market outlook for this year in the US.
Factors that can impact the credit card market
In first place, we have the economy outlook for this year which is positive. The Fed is expecting low unemployment and inflation rates and that will incentive higher wages.
Those higher wages means that people is able to have higher debt because they have more money to pay for it. However, the financial institutions should be able to manage the situation and the economic growth will keep strong. The environment for borrowing money shouldn`t be different compared to previous year according to the economy outlook for this year. The only difference may be in higher rates.
In second place, we have consumer behavior because credit card holders have been using more their cards in the past years. In fact, the credit card sales volume has grown around 9% and if the economy keeps growing as it should the volume should be getting higher.
A healthy economy with a stable growth is going to incentive the people to spend more money because they have good expectations for the economy. And that means that they will borrow more money from financial institutions by using their credit cards.
In third place, we have regulations which are oriented to consumer protection (especially the information of the customer) and they may not be an issue for the credit card market.
There is a law in California that is going to protect the personal information of the credit card holders and they will be able to request that businesses delete the information. However, there are some restrictions to delete it. That means that it will be harder to track people if they delete their personal information.
In fourth place, we have credit risk which has been getting higher during the past year but it is still under the historical average. There is more risk in subprime lending (in small banks) because they are giving credit cards to more people with bad or no credit history in order to gain customers. However, that is not a risk for the economy or the credit cards market and there should not be substantial changes in the APR rates.
In fifth place, we have the digital progress that impacts the market. The customers will be able to request credit cards easier thanks to the technology that allows them to make it online.
The credit card holders will be able to track the use of their credit cards easily just by using a mobile app which are getting more efficient. The financial institutions that offer credit cards are able to see study the way that their customer uses the credit cards and present new products based on their needs.
And there are security improvements that will make the use of credit cards safer. All that is possible thanks to the technology that is being developed by the financial institutions and many other people.
Some numbers to have in mind
The total credit card debt hit $799 billion in 2018 and it has a sustained growth since 2014 supported by a good economy outlook. If the economy keeps getting stronger the credit card debt should be getting higher in a good way.
However, credit cards are not the most common payment method. Debit cards are most used by the majority of Americans (in 2017, almost 45% of the payments are made with debit cards).
However, that number is not equal for all Americans because if you see how people pay according to their income you will notice that people with higher income is the one that use credit cards the most.
People with an annual income below $25k make 44% of the payments with debit cards and 23% with credit cards (the rest with cash); people with annual income between $25k and $50k make 50% of their payments with debit cards and 25% with credit cards; people with annual income between $50k and $75k make 47% of their payments with debit cards and 31% with credit cards.
People with annual income between $75k and $100k make 42% of their payments with debit cards and 44% with credit cards; people with annual income between $100k and $150k make 40% of their payments with debit cards and 49% with credit cards and people with $150k or more of annual income pay 33% of their purchases with debit card and 56% with credit cards (source: TSYS Consumer Payment Study).
As you can see, the higher the income the more the people uses credit cards because they are able to manage larger amounts of debts and take advantage from it.
Some people may think that those numbers should be in the opposite way because people with less income may need to borrow money in order to manage their finances. But, people know that having high debt represent a financial risk and they manage to prevent the use of credit cards. If the rates continue to be the same those numbers should be the same for this year.