While credit cards have been a popular form of payment for years, businesses will need to break out their cash and check scanners to process transactions in the future, as consumers are using plastic on a less regular basis.
Consumers use cards less frequently
A report from the Federal Reserve revealed consumer credit card spending plummeted $1.7 billion in March, marking the sharpest decline since July 2012. This put a halt on a three-month trend that indicated credit card use was on the rise. In fact, consumer debt hasn't risen substantially since the recession hit, and the only type of debt that has seen a sharp increase is education related.
While reasons for the decline are uncertain, experts attribute some of the fall in consumer credit card spending to tax hikes, like the end of the Social Security payroll tax holiday. Fears of another economic slowdown or uncertainty as to how the recovery is faring could have also contributed to lackluster credit spending. Many consumers may be reluctant to accumulate debt while the economy is still experiencing ups and downs, which could force them to rely on cash and checks more frequently and put credit cards to the side for the time being.
Limited credit card use may mean other payments are increasingly prevalent
Just because consumers are putting fewer purchases on credit cards, it doesn't necessarily mean they're spending less. Customer demand is still strong, with many experts anticipating consumers will be eager to make the big purchases they put off during recession times. According to National Association for Business Economics, economists think consumer spending will grow throughout the remainder of the year, projecting the economy overall will increase by 2.4 percent this year and 3 percent in 2014.
Families are still making plenty of transactions, but they could be relying more upon alternate payment forms. Cash and checks are still popular among consumers, especially because they don't contribute to debt levels, require payments later or accumulate interest like payments made with plastic do. This could contribute to the strong consumer spending but relatively low credit card use seen in recent months. As such, business owners should be prepared with the necessary check imaging technology and cash counters that will help them process payments more smoothly and enhance money management practices.
June 11, 2013