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Data for today’s episode is provided by Mercator Advisory Group’s report – Credit Card Products for a New User Environment
2020’s Massive Downshift in Credit Card Spend:
- From Q4 2019 to Q2 2020, credit cards went from a 53.6% share of purchase volume to a 44.7% share (Visa & Mastercard data only).
- In Q4 2019, total Mastercard & Visa credit purchase dollar volume was $798 billion; by Q2 2020, total credit purchase volume was $596 billion.
- Meanwhile in the same time frame, debit purchase volume rose from $691 billion to $738 billion.
- Average transaction size increased for both credit and debit, although debit’s growth has been more dramatic: up 16.7% YOY in Q2 2020 versus 1.7% for credit.
- The $6.64 growth (fully 6.3%) in debit’s average transaction size in just four quarters illustrates that long-held metrics can quickly topple in this environment.
- Average ticket for credit card purchase is up to a new high of $85.94.
- Average ticket for debit card purchase is also at a new high of $46.42—and growing faster than credit.
The pandemic changed life as we know it for credit card lenders and cardholders. Being a lender is not so simple anymore. Profitability is under siege, driven by loss provisioning, declining outstandings, changing spending patterns, debit competition, erosion in the power of rewards, and a deep recessionary environment. Primarily driven by the externality of the COVID pandemic, many behavioral changes among cardholders are likely to be long term, if not permanent.
Mercator Advisory Group research, Credit Card Products for a New User Environment, indicates a shift in credit and debit patterns. Contactless payments mean more to merchants, consumers, and issuers than ever. Durable spending is down; consumptive spending is up. And, credit card deferrals do not seem to carry the stigma they once did. Rewards consume a large portion of interchange, and in a shifting market, all costs must receive consideration.
“You cannot simply throw rewards at consumers and expect profitable market share,” comments Brian Riley, Director, Credit Advisory, at Mercator Advisory Group, and the author of the research note “Credit Card Products for a New User Environment.” Riley adds that “Credit cards are certainly not going away, but expect lower returns, higher risks, and shifting purchase patterns at least through 2025. And, do not forget the investor. It might be balance sheet lending or asset-backed securitizations enabling the credit card lender, but without the investment, card lending will cease. Lending is a risk-based business; it requires a return for tolerating the risk.