Smartphone magic that lets you breeze through checkout
lines? Higher barriers against rapacious
Changes are coming for credit cards and the people who use them in 2013, as new
ideas and technologies push to improve costs and convenience.
Overlay this trend on a shifting regulatory landscape, plus an
economy that is being rattled by political battles, and the road ahead could be
full of bumps and twists.
One of the biggest unknowns is how much we'll be using
credit cards in the first place. Households have slimmed down their
levels since the Great Recession of 2008-2009, and the economy has
somewhat. But questions persist about whether the frightening downturn
long-term damper on people's outlook. Consumer credit card balances
overall reached a 10-year low in the second quarter of 2012 before ratcheting up somewhat, as
consumers continued to buff up their household balance sheets.
"We still see
consumers taking very conservative positions regarding debt," said
Patricia Hewitt, director of Mercator Advisory Group's debit advisory service.
"We really think there's a permanent change in the way people approach
these (debit and credit) products."
Mercator projects growth of 4 percent to 6 percent in
credit card charges in 2013. But with consumers still debt-shy, the increased
use of cards is not expected to jack up people's outstanding balances. That's good
news: More of us are expected to learn how to pay off our balances monthly.
We interviewed analysts and plumbed reports for other predictions and
Interest rates have only one direction to move
The big picture:
One key to making
consumers more comfortable about the economy will be the health of the job
market, Hewitt said. But the outlook
there is not especially bright. The Federal Reserve's core projection for 2013
is that jobless rates will improve only slightly or flat-line in 2013, with a
predicted range of 7.6 percent unemployment to a high of 7.9 percent -- about the same
as the jobless rate near the end of 2012
inflationary pressure low, interest rates - including the benchmark prime rate,
currently at 3.25 percent -- should remain stable, according to a panel of 44 forecasters polled by the National Association for Business Economics. This in turn would
hold rates on variable-rate credit cards in check. However, longer-term rates are expected to
rise somewhat as the Fed approaches the end of its period of "exceptionally
low" rates in mid-2015. Rates on the 10-year Treasury note, a widely
watched benchmark, are expected to climb to 2.3 percent by the end of 2013,
from about 1.7 percent now.
We still see consumers taking very conservative positions regarding debt.
Mercator Advisory Group
"People just need to ignore what's going on in
Washington and pay attention to what's happening on the ground," said
Matthew Shapiro, president of the financial adviser MWS Capital LLC in the Chicago
area. He cites rising rates of household formation as a key factor that will
lift jobs and brighten the picture for consumers. "People are going to
feel much better than they have about housing," he said.
The consensus view from economists is less glowing than Shapiro's outlook, but
still positive. Political battles over federal spending and debt levels are expected to continue into 2013, but should leave the
economy only lightly bruised. The high cost of failing to work out some budget
compromise is expected to compel Washington to cobble together something that staves
off crisis, although it may fall short of a long-term fiscal solution.
What you should watch for and do:
If general interest rates begin to move back upward it becomes more expensive to carry a balance, as most credit cards are linked to a variable rate. That makes it even more important to pay down balances and take other steps to limit interest charges on cards. Consider moving debt to a balance transfer card to take advantage of the introductory zero interest rate, to buy time to pay off the debt.
Digital wallets, prepaid cards gain ground
The big picture:
Card alternatives that people are
adopting seem to share a common denominator: They help you manage an
increasingly complex financial life. Digital wallets and reloadable prepaid
cards had a big year in 2012, and analysts expect to see more strides in 2013.
With online and real-world commerce becoming more
integrated, the digital wallet is gaining traction. The convenience feature is managing
different forms of card payments and navigating more easily between online and real-world
A screenshot from Google Wallet
Even Google Wallet, conceived as a mobile payment solution, looks to
be repositioning as a cloud-based wallet that can be used in stores -- using
traditional card technology -- or on the web, analysts at Keefe Bruyette &
Woods said in a December report. And starting
in 2013, PayPal users will be able to make payments in stores using the Discover
network, in another example of crossover between e-commerce and brick-and-mortar
As reward programs proliferate, wallet ideas like Wallaby
could win converts, said Andrew Davidson, senior vice president of Mintel
Comperemedia. The cloud-based wallet handles your cards and analyzes how a
given transaction will generate points, cash back or airline miles. It chooses
the best option based on preferences you set. "In a complex rewards
landscape, with airline loyalty (and) 5-percent cash back -- you might spread
your spend over different cards," he said.
Prepaid cards are also set to advance in 2013, after making
strides into the mainstream in 2012, analysts said. Once thought of as
store-specific gift cards, prepaid cards with a reloadable feature are being seen as an alternative to traditional checking accounts, as big banks launch cards that are accepted across major payment networks. In 2012, major players including Chase, U.S.
Bancorp and American Express launched prepaid cards, leading to improved
prices for users and vaulting the cards from a niche to the mainstream, KBW's
As for gift cards, Democrat-backed legislation was
introduced in the U.S. Senate near year-end to extend expiration dates from
five years to never, and to prohibit inactivity fees that erode the cards'
value. The measure would also block
companies in bankruptcy from issuing new cards, and require them to honor old
ones. The measure has support from consumer groups, but bank groups call it unworkable, and analysts
don't expect it to pass in its current form.
What you should watch for and do: If you are paying fees for a bank account now, check into using a reloadable prepaid card instead. Weigh cards that charge transaction fees against those that charge a monthly fee. Depending on your financial habits, you could save money compared to the costs of your current bank fees.
Card offers remain dim, with some bright spots
The big picture:
Expect it to be harder to find a really great credit card balance transfer deal or a big
sign-up bonus -- but good offers are still out there. That's the take from
Davidson at Mintel Comperemedia. Offer
volume -- which is likely to remain at sub-2011 levels -- is targeted mainly at
higher-end customers, as the subprime market has not bounced back
from the recession.
"One interesting trend we're seeing, even though
offers are going to the same customers, they're slightly less favorable
they've been in the past," Davidson said. For example, there are fewer
balance transfer cards with a lengthy, 21-month introductory
period, as issuers pare back the period to the 12-, 15- or 18-month
range. And sign-up premiums worth hundreds of
dollars in points and rewards, seen on some card offers in 2011, have
become rarities. And typical interest rates remain near 15 percent.
"There are still very good offers -- the bulk have no
annual fee and most have zero (introductory) APR," Davidson said.
"But within those that have a fee, the fees are increasing." He is
seeing annual fees settle at $95 (after introductory discounts) for cards that
offer features such as priority boarding and airline club access for travelers,
as well as extra points or miles. That
could represent a savings over the high-end cards with even more robust
features that come with fees in the $450 neighborhood. "They're cutting
into that elite segment with more and more tier pricing," Davidson said.
One interesting trend we're seeing - even though offers are going to
the same customers, they're slightly less favorable than they've been in
The volume of card offer mailings, a barometer of overall activity,
is expected to flat-line into next year from its current reduced volume. "As
we get on a more solid footing (economically), we'll probably see a slight increase,"
Davidson said. Analysts at Credit Suisse project a 10 percent uptick in mailings over 2012.
Card issuers will be watching the performance of
innovations such as Barclaycard's Ring, which was announced in March of 2012 as
the first "social" credit card, and which could be the model for a new type of card offering. Using strategies from the social
networking world, Ring is built on having simple terms -- 8 percent interest on
all balances, for example - and shares profits generated by user behavior, such
as opting for paperless statements. Ring made its first
profit distribution to holders of $22,000 in November, split among 1,400
customers -- more than 30 received credits of over $100. "I think it's early
days," Davidson said, but the idea of motivating cardholders with a share
in the card's financial success is "intriguing."
What you should watch for and do:
Don't be complacent about your current card. Offers are changing rapidly and sign-up bonuses are still available with some of them, so evaluate the benefits you are getting now with a critical eye.
Mobile smartphone payments are dawdling
The big picture:
Technology marches on -- but its pace has slowed to a grudging shuffle where mobile
payment systems are concerned. Paying at
cash registers with a wave of your smartphone has been ballyhooed as the wallet
of the future, and that's where you'll see the technology in 2013 -- still off
in the future.
In fact, it may be pulling further away. One analyst just
pushed back its forecast for widespread adoption of the technology after
Apple's iPhone5 debuted without a built-in chip for wave-and-pay phone transactions
-- known as "near-field communications" or NFC in geek-speak.
"Retailers say, 'If Apple's not going for it, why should we?'" said Windsor
Holden, research director at Juniper Research. "It could be perceived as a
lack of confidence in the payment marketplace." His report cut the outlook
for near-field mobile transactions by 40 percent -- now Juniper projects the transactions
will reach $110 billion globally in 2017.
Only about 1 percent to 4 percent of people are using some form
of mobile payment currently, according to a Vantive/Mercator report, and the
most common payments are via the mobile web or a retailer's app, not at the
checkout register. Ideas such as Google Wallet -- with its short list of eligible
phones and participating retailers -- are waiting for some trigger that will
put widespread consumer demand behind smartphone payments.
The hurdle for smartphone payments is that retailers, financial
institutions and payment processors need to work together to adopt the
technology, but consumers aren't pushing them to do so. In fact, as 2012 wound
down, Verizon was in a spat with Google over blocking Google Wallet from
Verizon phones.Verizon is testing its own mobile wallet called Isis, a potential competitor to Google.
For many shoppers, mobile phone payments may be a solution
looking for a problem. A quarter of
respondents in the Vantive/Mercator survey said that mobile wallets would be
convenient, but only about 12.5 percent said they'd rather pay with a
smartphone than a card. Retailers, facing higher costs to update their
point-of-sale systems, are not eager to spend the money unless customers are clamoring
for the technology.
What you should watch for and do:
Don't worry if you are not in the vanguard of this new payment technology. Until more retailers are on board with mobile payments, the advantages of wave-and-go payments are limited. It doesn't make you a Luddite to wait until this idea gains more followers.
Tighter leash for consumer watchdog?
The big picture:
If the credit card industry does not follow the Ring card and adopt transparency as
its business model, regulators will still have a role to play. The year 2012 saw a big expansion of
protection, as the federal government's new consumer financial watchdog started to exercise its enforcement powers -- and the focus of its efforts was the
credit card industry.
We're very keen on protecting the CFPB from any effort to water it down or restructure.
Center for Responsible Lending
Even so, 2013 could be a year of retreat for the bureau,
which is hampered by a political liability. Director Richard Cordray's recess appointment,
done without benefit of Senate confirmation, is vulnerable to challenges. Some
analysts think the bureau might even relinquish its single-director structure in
a compromise move, adopting the five-commissioner, two-party system in place at
other federal regulators. But consumer advocates want to keep the bureau strong
and, as part of the Federal Reserve, insulated from congressional budget
pressures that can undercut regulatory toughness.
"We're very keen on protecting the CFPB from any effort
to water it down or restructure," said Kathleen Day, spokeswoman for the
Center for Responsible Lending.
Another big question is whether the regulator will turn its
attention to the burgeoning market for reloadable prepaid cards, which have quickly
become an alternative to standard bank accounts for many people. The bureau began a rulemaking process this year, but
some observers expect it to remain busy with mortgage regulations before settling
down to prepaid cards. "I think they want to get there, but it will
probably be a stretch in 2013," said Suzanne Fay Garwood, a partner at law
firm Venable, which publishes a "CFPB Watch" newsletter.
Major companies entered the prepaid card arena in a big way
2012, and the competition helped lower costs for consumers. For example, Chase launched
its Liquid card with a $4.50 monthly fee, and American Express followed with
its Bluebird card, which charges for certain transactions instead of a recurring
"The products have gotten better, said Joseph Valenti, director of asset building at the Center for
American Progress and the co-author of a paper, calling for regulation. "There are a lot more cards on the market."
What you should watch for and do: Complaint information published by the consumer bureau adds a new dimension to comparison shopping. You can check complaints made against credit card issuers now on the agency's website.
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