Posts Tagged ‘Credit Cards’
Now that my bank has eliminated its debit card rewards program my debit card is really just an ATM card. It serves no other purpose. Like millions of consumers, I use rewards credit cards for my spending, but I still have to carry a debit card in case I am forced to use cash. The time has come for an all-purpose credit card where I can get cash from an ATM at little or no additional cost. Then I can choose to leave my debit card at home and manage my spending on a single payments platform.
Debit card rewards are difficult to find these days. Many banks have been forced to eliminate rewards programs after debit card interchange revenue was slashed by the Durbin Amendment in 2011. At the same time credit card rewards have become easier to find (rewards cards accounted for 74% of acquisition offers in Q2 2012 according to Mintel Comperemedia). Some credit card issuers have even been promoting the benefits of credit over debit by touting not only the rewards but the additional security and the flexibility of being able to pay over time. The result is that debit is becoming redundant for heavy credit card users.
Even though debit functionality is becoming less useful, consumers still need to get access to cash and, currently, credit cards are not the answer. I would never consider using my credit card to make a cash withdrawal from an ATM. Aside from the ATM fees, most issuers charge a minimum cash advance fee of $10 per transaction (up from $5 pre-CARD Act) accompanied by a prohibitively high APR and, most importantly, no interest-free grace period. It would be crazy me for me to withdraw money this way when I can do it for free using my debit card. As such, cash advances are typically used by consumers in desperate circumstances with an urgent need to access cash.
In 2011, Fifth Third launched its DUO Card that potentially solves the problem. DUO is a hybrid card that operates as both a debit card and a credit card. Cardholders swipe their card, press “debit” and enter their PIN for a debit transaction or they swipe, press “credit” and sign for a credit transaction. Cardholders can access cash from an ATM using the same piece of plastic. DUO is a wonderfully innovative product but the debit component means that it is restricted to Fifth Third banking customers.
Technology also potentially solves the problem. ATM manufacturer, NCR, can now facilitate card-less cash withdrawals with new software that enables consumers to access ATMs with their smartphones. Consumers need to enter a PIN number and a dollar amount into their smartphones and then scan a QR code at the ATM to make the transaction. This is another wonderful innovation but, assuming a debit transaction, it doesn’t consolidate my spending on a single payments platform.
If credit card issuers were to change their cash advance fee structure for ATM withdrawals then the problem would be solved. Remove the cash advance fee, add a grace period and waive the ATM fee (for consumers with a banking relationship) and you have a product that allows consumers to leave their debit cards at home and manage their spending on one card. If targeted to the right segment there would be little or no lost revenue – I have never used my credit card to withdraw cash – but there would be increased loyalty. It would also streamline the industry and pave the way for the anticipated adoption of mobile payments.
Millions of consumers still prefer to use debit cards so an all-purpose credit card would not be for everyone. But there are consumers who will value the additional convenience of being able to carry just one card without having to switch to a hybrid.
In a few months, a new and innovative credit card will likely be tested in the United Kingdom. This “smarter” credit card will allow customers to manage all of their accounts via one card, including personal and business credit accounts, as well as bank accounts. The card is the same size as a regular credit card, but it has buttons and a screen allowing customers to choose the credit account to charge against. Once the customer has selected the account, the process for charging is exactly the same. Dynamics Inc. manufactures the cards, which contain a miniature, flexible circuit board, a battery that lasts up to three years, and a programmable magnetic stripe – very much like a miniature computer. The technology from Dynamics is currently being utilized and tested by Citibank in the United States, but Dynamics appears to be in advanced talks with other United Kingdom banks regarding trials with this technology.
Dynamics currently manufactures several different innovative types of credit cards, such as a hidden card, a multi-account card, and a dynamic card. The hidden card hides account number information until the cardholders enters a PIN to reveal the full information necessary to complete a transaction. The multi-account card is fairly straight forward in that there are two accounts on the card and the user selects which account to utilize. In addition, the dynamic card helps to prevent fraud by automatically writing a new and unique security code onto its magnetic strip for every purchase, which could cause a problem for stored purchasing options, such as iTunes or a re-occurring Netflix subscription.
The company also manufactures a redemption card that allows the user to use points or credit at the point of sale by pressing the respective button. Comperemedia observed this card back in September 2011 from Citibank, called the Citi ThankYou Preferred 2G Card with Request Rewards (Media ID: 20110920-01191). Citibank employees started testing this card back in May 2011.
One of the most interesting things regarding all of the cards is that they all can utilize the existing magnetic strip technology and infrastructure already in use in the United States. Thus, merchants would not have to upgrade or change point-of-sale machines, as they would have to do so if chip and PIN technology or EMV (Euro MC/Visa) were implemented. However, Dynamics has developed versions of the card that utilize chip and PIN technology if we ever switch to this technology in the United States.
I have not seen any of these credit cards yet and there might be some kinks to work out prior to widespread usage, such as re-occurring purchases. However, anything that increases convenience and security is a plus in my book. The multi-card is an interesting product in that it would eliminate cards (and clutter) within my wallet. Likewise, it would be interesting to see if you could put accounts from different financial institutions on the same card – that would be cool. But let’s see how the trials go first in the UK.
Just in time for Black Friday and the holiday season, credit cards are making a comeback.
According to a USA Today article, “On Black Friday, payments made with credit cards rose 7.4% from a year earlier, vs. an increase of 3.4% for payments with signature debit cards,” according to First Data, a payments processing firm. An analysis by Javelin Strategy & Research forecasts that credit card payments for online purchases will increase 63% from 2011 to 2016, vs. 2% for debit cards. During the recession, the use of credit cards declined as cost-conscious consumers switched to debit cards and cash for their purchases.”
There are likely a number of reasons for the return to credit cards. Effective from Oct 1st, the Durbin Amendment, which capped interchange fees, resulted in most banks eliminating rewards on debit cards. Thus, consumers wanting rewards for purchases needed to place them on credit cards and those consumers without credit cards may have applied for them during the past six months. (Personally, I know I did apply for a new credit card with rewards during the past six months due to the elimination of rewards on my debit card.) Additional evidence supporting my theory comes from the Federal Reserve Bank of New York that reported that credit account inquiries increased for the second quarter in a row (an indicator of consumer credit demand). This may indicate a possible, albeit slow, return to borrowing habits. Anthony Karydakis, the chief economist at Commerzbank in New York, said “slowly but steadily, consumers are exploring more normal ways of returning to a more normal pattern when it comes to borrowing habits.”
It is interesting to note that retail sales during Thanksgiving weekend climbed 16% with shoppers spending $398.62 on average, which is up from $365.34 a year earlier, according to the National Retail Federation who cited a survey from BIGresearch. ComScore also reported that web sales for Black Friday surged 26% to $816 million and 18% to $479 million on Thanksgiving Day. Although, personally, I did not shop during the Thanksgiving weekend, I know I will be charging my Christmas gifts on a credit card in the near future for the rewards. The jury is still out whether or not I will spend more or less in comparison to last year…. Hopefully less! But doesn’t it always seem that you end up spending more than you expected to around the holidays?
Consumers could also be suffering from “frugal fatigue” from the past three years, says Gerri Detweiler, author of Reduce Debt, Reduce Stress. She stated that “people are tired of having to cut back, and that can lead to spending more on credit cards.” Again, I completely agree in thinking that people want to spend a little bit more this holiday season after cutting back in previous years. Why wouldn’t someone want to get something nice for their family and loved ones for the upcoming holiday season? Either way, more consumers are using credit cards, which is good for banks, retailers, and the overall economy.
Using credit cards for holiday shopping offers many benefits such as convenience, peace of mind, purchase protection, and now extra rewards. In order to encourage usage this holiday season, many credit card companies are offering special cash back deals and savings opportunities. For example, Discover has a holiday-themed website featuring the tagline “Gifts for them. Rewards for you.” Discover’s website also features a special incentive offer of $150 cash back when you spend $1,000 in the first 90 days of opening a Discover Card.
According to USA Today, this isn’t Discover’s only promotion. Discover is also offering 5% to 10% more cash back on purchases at select retailers, but only if they are made through Discover’s Shop Discover. American Express is offering five times the rewards points on purchases from select retailers such as Apple and Target. And the Amazon.com rewards card offers extra rewards on digital downloads purchased during a limited time-frame. Comperemedia observed another special offer for the Amazon.com Rewards card, promoted in the email and digital channels. From November 15 through December 31, customers can earn 3 points for every $1 spent with the Amazon.com Rewards card through Checkout by Amazon. Checkout by Amazon is a feature available through many online merchants that ties all of your purchases back to your Amazon account, even if they are made on another website.
There are also many rewards that might not be as obvious. I happened to stumble upon the Small Business Saturday Facebook page and discovered that American Express is offering a $25 statement credit when you register an eligible American Express card and use that card to make a purchase of $25 or more at a small business on November 26th.
The holidays are quickly approaching, so it would be worth your while to take the time now to browse through some of the special deals out there and find the best card for the kind of shopping you like to do. Take the time and do some digging, it could be extremely rewarding.