Plastic’s Comeback? More Promise for Consumer Credit Market in 2012

by Mercator Advisory Group 0

Industry buzz continues to focus on a credit card “comeback.” Data from the card networks confirms that credit card-based spending is rising. This increased spending is being delivered through a much smaller account base, as issuers purged inactive accounts, pared credit lines, and charged off accounts. So far, the increased spend is yet to definitively translate into increases in revolving balances for issuers.

Silvio Tavares, senior vice president and division manager of First Data Global Information and Analytics Solutions, says that credit card usage was growing at a rate of 5.1 percent in Q4 2010, but by mid-2011 that rate had more than doubled to 10.6 percent. As lenders and banks start to loosen their grip from the clampdown of 2008 and 2009, all indicators point to more consumers being approved for cards and returning to credit.

“Credit went from the slowest-growing payment type over the past two years to the fastest-growing payment type,” says Tavares. “What has been changing is the way [consumers] use it.”

While consumers are using their credit cards more, they’re more inclined to pay their balance in full each month and avoid interest charges. Tavares says they’re making a shift to using their cards as payment vehicles rather than short-term loans.

Retailers are also returning to consider private label credit programs, which can generate incremental sales, although often with increased risk.

According to data from Fitch Ratings, charge-off rates on private label cards averaged 9.45 percent in June 2011, compared with 6.33 percent for bank cards. Despite delinquencies and charge-offs, cards are still a profitable business for retailers because the increased sales often offset the problem accounts.

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