The pandemic has not only changed what we spend our money on, it has changed the way we spend it. We’re buying more online, which might suggest we’re using credit cards more, but in fact in 2020 there were fewer active credit card accounts overall than in 2019.
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“The number of credit card accounts declined by around 2 million in 2020,” said Chris Motola, financial and credit card analyst, MarchandMaverick.com. âWhile it’s not entirely clear why, there’s a good chance it’s due to a combination of banks tightening their lending standards and customers more cautious about debt. So it’s possible that we had a contraction in both supply and demand during the pandemic. This is a pretty sharp reversal from previous years. However, the numbers appear to be back for 2021, although the growth rate does not appear to be as high as in 2018 and 2019. â
Our behavior when it comes to credit card spending has changed in other ways as well. Here’s a look at what industry insiders and financial experts have found about how the pandemic has changed our relationship with credit cards.
Card issuing banks cut lines of credit
The fact that credit card use declined during the pandemic may have less to do with consumer choice and more with what was going on behind the scenes on the lender side.
âAt the onset of the pandemic, card issuing banks started cutting lines of credit and closing cardholder accounts,â said Cristopher Carillo, co-founder of Allied payments. “This was a precautionary measure taken by the banks to reduce their potential liability.”
Contactless payment options have become more popular
âWhile usage was generally down in 2020, one area that saw growth was ‘contactless payments’,â Motola said. âThis is a category that includes both payments through mobile apps and NFC (near field communication) payments. Much of this can be attributed to merchant behavior, as many upgraded their point of sale systems during the pandemic as a marketing tactic for nervous customers. Apple Pay is currently the leader in mobile payments, followed by Starbucks, Google Pay and Samsung Pay respectively. “
Debit cards have gained market share among card users
âMore consumers, 42%, prefer to pay with debit cards, followed by credit cards at 29% and cash at 23%, according to the latest data from the Federal Reserve.,” noted Andrew Latham, Certified Personal Finance Advisor and Editor-in-Chief of SuperMoney.com. “It may seem counterintuitive that debit cards continue to be more popular than credit cards, even though the average credit score of Americans – at around 716 – is higher than ever.”
The rise of debit cards is mostly positive, especially considering the dramatic consumer credit card debt burden in the United States.
âThere is a good reason for the popularity of debit cards,â Latham said. âThey offer many of the benefits of credit cards, but reduce the risk of getting into debt and ending up with high interest rates. “
The only real downside to debit cards is that “you miss out on the superior rewards and fraud protections you get when paying with a credit card,” Latham said.
We have less credit card debt
âConsumers didn’t have as much credit card debt in 2020 as they did in 2019,â Motola said. âThe average credit card balance was about $ 700 lower than in 2019. Purchasing volume was down for all major credit card networks. The stimulus checks may also have helped customers pay off existing balances. “
We relied more on the benefits of credit cards
âAs the pandemic put pressure on supply chains and the workforce, traditional coupons and discounts have become less plentiful, making the benefits and rewards associated with private label credit cards and all the more attractive, âsaid Val Greer, CCO at Alliance data. âResearch from Alliance Data shows that 55% of back-to-school shoppers who use credit used their card specifically to earn or redeem points, while 49% used their card to access a special discount or offer. for cardholders only.
âCustomers are also drawn to the perks offered on acquisition, often requesting a new card to access a special offer,â Greer continued. âTo attract customers, brands must continue to deliver engaging and convenient experiences and valuable accessories that deliver distinct benefits to customers. “
We buy more online – with a credit card
âSince the start of the pandemic, online shopping has increased,â said Nathan Grant, senior credit industry analyst at Credit card insider. “We made a survey in 2020 around the holidays and 51% of respondents said they preferred to shop online rather than in-store, an increase of 16 percentage points from last year. Of these, over 57% said they preferred to use a credit card for payment.
Credit card use is still declining
âCredit card use is still down from pre-pandemic numbers,â said Jake Hill, CEO of Debt hammer. âYou’d think it would increase, but many Americans saw the writing on the wall and prioritized saving so they wouldn’t have to rely on credit. Others took advantage of the stimulus payments and increased the UEI. These factors have allowed more Americans to focus on refinancing with their credit, using a single card to pay off a higher interest account. “
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Last updated: October 8, 2021