New research shows that half of Americans with access to credit may quit using credit cards. That would be a serious blow to Visa (NYSE: V) and MasterCard (NYSE: MA) The trend could also hurt earnings at the consumer bank divisions of many large financial firms.
Research from Javelin Strategy shows that “Credit card use among consumers decreased 31% between 2007 and 2009 (87% in 2007 down to 56% in 2009); if this rate of decline continues through year-end, credit card use will fall below 50%.”
Suppose that the trend does not reverse itself and the future of consumer spending shifts from one of credit-based purchases to one of cash and debt-based buying. The change would almost certainly undermine what is already shaky consumer activity and could permanently change the way that people use their money.
A cash-based society would be a throwback to habits that have been gone for decades. The only debt that many households had half a century ago was their mortgages and in some instances their car loans. Banks began to gamble that they could create a way for consumers to buy goods and services and pay for them later. This became a large enough industry to support what the government shows is hundreds of billions of dollars of consumer debt facilitated by companies like American Express (NYSE: AXP) and the personal service groups at banks.
Suppose that the consumer moves away from credit card use in large numbers. The result would be a drop-off in retail activity, at least during the transition from the use of credit cards to cash-based buying. Consumers may start to think twice about their shopping methods. A consumer who considers a purchase based on the ability to pay is a consumer who may decide that the purchase is not worth the risk of repayment at all. The retail industry could be changed forever
Douglas A. McIntyre
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