Inflation and rising interest rates are leading to soaring credit card debt
Consumers Go Down Market to Keep Racking Up Credit Card Debt
Credit card executives have started to see U.S. consumers shift their spending to lower-cost products as they grapple with inflation at its highest level in 40 years. Overall volume on credit cards soared 20% to $1.1 trillion at the country’s largest lenders in the second quarter, with many of them reporting record spending for the period. Executives said the recent surge in prices has done little to damp consumers’ appetite for either travel or goods and services. [Bloomberg]
Nearly 20% of Americans Are Afraid to Check Their Credit Card Statements as Interest Rates Approach an All-Time High
As credit card debt swells and interest rates spike, many spenders are fearful about high balances. Nearly 1 in 5 Americans are afraid to check their credit card statements, according to a recent report from travel website Upgraded Points, which surveyed 3,500 people in April 2022. While Americans trimmed credit card debt in 2020, steep balances have returned amid soaring costs for staples like gasoline, groceries and housing. Credit card balances jumped $71 billion year over year, topping $841 billion during the first quarter of 2022. [CNBC]
Credit Card Spending Soars as U.S. Consumers Battle Rising Inflation
Mastercard said spending on its network jumped 18% as US consumers battle once-in-a-generation levels of inflation. Payment volume soared to $1.65 trillion in the second quarter, topping the $1.64 trillion average of analyst estimates in a Bloomberg survey. The company boosted its forecast for revenue growth for the year after it reported a 58% surge in overseas payments as consumers flocked to take trips and get back on the road following two years of pandemic-induced lockdowns. [Bloomberg]
U.S. Makes Huge Interest Rate Rise to Tame Soaring Prices
The US central bank has announced another unusually large interest rate hike as it battles to rein in soaring prices in the world’s largest economy. The Federal Reserve said it would increase its key rate by 0.75 percentage points. The bank has been raising borrowing costs since March to try to cool the economy and ease price inflation. But fears are rising the moves will tip the US into recession. Recent reports have shown falling consumer confidence, a slowing housing market, jobless claims rising and the first contraction in business activity since 2020. [BBC]
U.S. Economy Shrinks for a Second Quarter, Fueling Recession Fears
The drumbeat of recession grew louder after the U.S. economy shrank for a second straight quarter, as decades-high inflation undercut consumer spending and Federal Reserve interest-rate hikes stymied businesses and housing. Gross domestic product fell at a 0.9% annualized rate after a 1.6% decline in the first three months of the year, the Commerce Department’s preliminary estimate showed Thursday. Personal consumption, the biggest part of the economy, rose at a 1% pace, a deceleration from the prior period. [Bloomberg]
Senate Bill Takes Aim at Visa, Mastercard Credit Card Fees
Two U.S. senators are preparing legislation that would give merchants power to process many Visa and Mastercard credit cards over different networks. The bill, which could be introduced as soon as this week, aims to create more competition among U.S. credit card networks, a sector where Visa and Mastercard have long dominated. Sen. Dick Durbin, an Illinois Democrat, and Sen. Roger Marshall, a Kansas Republican, are expected to introduce the bill. [The Wall Street Journal]
Apple’s Move Into BNPL Space Triggers Alarm at CFPB
Apple’s move into the buy now pay later space has the attention of Rohit Chopra, director of the CFPB, who is now examining the larger implications of big tech companies becoming lenders. The CFPB is taking a close look at the “implications of Big Tech entering this space” and is considering a number of issues, including whether Apple Pay Later could “reduce competition and innovation in the market,” Chopra said as reported by the Financial Times. Apple Pay Later is one of about 80 BNPL products on the app shelf, including PayPal, Affirm, Afterpay and Klarna. The CFPB boss said that while his agency has concerns over tech entering the BNPL space, there is also unease over how Apple is using information collected in its buy later transactions and whether it’s being combined with browsing, geolocation, and health data. [PYMNTS]
33% of Small Businesses Have Been Severely Impacted by Credit Card Fraud
All businesses, great and small, have at least one thing in common: payment processors. Cash-only businesses get away without having to pay a processor to complete credit card, debit and digital payments, but that type of business is rare. Accepting card payments is convenient—for you and customers—but it means there’s a risk of credit card fraud. And while point-of-sale platforms can help you better facilitate payments, they can bring their own obstacles. In a Forbes Advisor poll, 33% of small business owners said credit card fraud is a major issue. Is the risk worth the reward? [Forbes]
Buy Now, Pay Later Industry Is About to Meet Its First Big Test
Consumers can buy now and pay later for just about anything. Lauded as a much-needed alternative (and threat) to credit cards and predatory lenders, buy now, pay later has also been criticized as a gateway drug to debt for the young and inexperienced. Either way, BNPL represents one of the biggest and fastest changes to consumer credit in decades. [Bloomberg Law]
Credit Card FinTech Cardless Launches Amex Partnership
Credit card FinTech Cardless has formed an agreement with American Express that lets a number of America’s highest profile brands launch digital-first cards on the Cardless platform. The company noted the partnership comes at the same time as “significant” investment from Amex Ventures, American Express’ strategic investment arm. Cardless cards offer several features designed for digital-native consumers, both in terms of security and easy access. New users can apply for a Cardless card with their smartphone. Once approved, the virtual card will arrive in their mobile wallet in seconds, with a physical card showing up a few days later. Customers can manage their accounts through the Cardless app, with immediate access to things like rewards, purchase tracking and bill payment. [PYMNTS]
Meet Upgrade OneCard, a Combination Credit and Debit Card
Upgrade has offered consumers personal loans, auto loan refinancing and other personal finance products since 2016. Now, the San Francisco-based fintech company is introducing its latest product, Upgrade OneCard, which offers a unique combination between a debit card and a credit card, with a hint of “Buy Now, Pay Later” thrown into the mix. The Upgrade OneCard allows consumers to designate between “Pay Now” and “Pay Later” when it comes to paying for purchases. For the former option, the amount will immediately be pulled from the cardholder’s checking account, similar to how a debit card functions. For the latter, the purchase amount will be spread out over time to be paid back in fixed installments with interest, like a credit card. [CNBC]