“Most Americans (62%) expect the U.S. to become a cashless society in their lifetime, with all purchases being made with credit cards, debit cards, and other forms of electronic payment,” says a recent Gallup poll.
An article at creditcards.com notes that from Q2 2015 through Q2 2016, ten million people joined the ranks of credit card holders.
Roughly seven in 10 consumers have at least one card, according to the Federal Reserve. “Using the Census Bureau estimate of 248 million adults in the U.S., that means there are about 174 million American adults with at least one card.”
By age, cardholders age 25-34 comprise the biggest group owning cards at 83%. Those 50+ have cards at a rate of 78%, and 76% of consumers ages 35-49 own a card. Those from 18-24 have card ownership at the lowest rate: 67%.
Given the prevailing sentiment toward a cashless society and the increase of card ownership, it is important to understand this payment system to anticipate challenges and opportunities ahead.
‘Bad shopping habits die hard.’ --Tori Spelling, actress
“While the Credit CARD Act of 2009 has led to a drop in credit card use on college campuses, many students have turned to debit and prepaid cards to pick up the slack,” notes another article at creditcards.com.
One explanation for a preference to debit for students is greater access. Any consumer under 21 who desires a credit card must have an adult co-sign, or indicate they have ample income to repay debt, per the CARD Act.
One survey shows that at the beginning of 2015, 23% of college students held a credit card of their own, a dip from 46% who did so in 2005. Thirty-eight percent of students lacking a credit card did hold a debit card in 2015.
Still, despite the challenges the CARD Act poses for students in obtaining credit cards, “it in no way has eliminated the college market, especially among students concerned with building credit,” the article notes.
Among college students holding cards, the average amount they possessed was 1.5 cards in 2015 with a $1,339 credit limit, on average. Twenty-eight percent indicated their limits had grown over the prior year.
On average, limits for cards for first-timers was $807.
During 2015, students charged an average $141 per month, an increase over 2014’s $130. Cards were used 7.9 times per month (mean). Fifty-one percent of students used a credit card at least once per week.
The 2016 Credit Card Landscape Report by WalletHub says card issuers anticipated an interest rate uptick prior to year-end.
Interest rates on cards, on average, is up 39 basis points (bp) compared to December 2015. At that time, the Fed had upped target rate by 25 bp.
“Credit card rates previously mirrored the Fed, finishing Q2 2016 just 24 basis points higher than in December 2015,” the article says.
Fees have continued to fall, landing at $16.42 at third quarter 2016. This is a decrease of 5.85% year-over-year.
However, cash advance fees remain 66% higher than year-end 2012, indicating card companies “are continuing to exploit the weakness of cash-hungry customers.”
On average, cash advance fees are $14.71, or 4% of the withdrawal amount, whichever is greater.
The report reveals these findings about consumer satisfaction with cards:
‘There will always be waste, fraud, and abuse. That’s just life.’ –Scott Garrett, U.S. Representative
“U.S. Credit Fraud Could Top $10 Billion By 2020,” notes thestack.com. A NASDAQ survey shows card fraud has tripled from 2013 to 2014, an impact to beyond 30 million Americans.
Some think the U.S. is especially vulnerable to card fraud due to late EMV (Europay, MasterCard, and Visa) adoption. Experts determined that although EMV will limit some kinds of fraud, “card-not-present fraud may grow from $3.2 billion today to over $7 billion by 2020.”
Application fraud is anticipated to grow beyond $1 billion, while account takeovers will hit $2 billion in 2020.
Counterfeits should dip from 2016’s $4.5 billion to less than $1 billion in 2020, at which time EMV is anticipated to predominate.
It is suggested card issuers “invest heavily in security to prevent card fraud.”
Such investments might include biometrics, malware, and authentication—both knowledge-based and “out-of-band (two-factor)” types.
Meanwhile, paymentweek.com says banks and merchants lost $21.84 billion to fraud in 2015. This includes all credit, debit, prepaid cards, and private-label payment cards.
This translates to fraud costing 6.97 cents for every $100, an increase over 6.21 cents per $100 in 2014.
The Nilson Report indicates fraud has grown 20.6%; a faster clip than volume growth (7.3%).
Across the globe, U.S. fraud losses comprised 38.7%--$8.45 billion of card fraud losses (gross).
Card issuers bore $15.72 in fraud losses, or 72%, worldwide. The $6.12 billion losses remaining were endured by merchants and acquirers, the article notes.
Combating fraud involves taking both prevention and detection measures. To prevent fraud, technologies like biometrics and second-source verification can be employed, online banking and buying controls can be increased, and transaction signing via digital signature by the consumer can be helpful.
To better detect fraud, credit unions should implement malware software. Plus, consumers need to review accounts frequently, and automated data analysis can be conducted to identify fraud trends.
“Even if organizations have anti-fraud measures in place… they might not be able to withstand the sudden increase in occurrence. Heightened diligence is essential to spot the changing approaches of fraudsters,” the article notes.
The literature suggests that as credit cards grow in popularity as payment device, financial institutions and consumers alike must be vigilant as fraud schemes evolve and adapt to new technologies.
Know “what’s in the cards” for 2017 to help your members protect themselves.