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Consumers pull back on credit cards debit rising
WASHINGTON and YONKERS, N.Y. (10/8/09)--The recession has been hard on the credit card industry, but debit cards are another story, with debt-strapped consumers turning more and more to the debit card for purchases, according to The Washington Post Oct. 7). In July, revolving credit--primarily credit cards--dropped by $6.1 billion, or 8.1% on an annualized basis, according to the Federal Reserve. However, debit card use, which has steadily grown over the years, has surged during the recession. For the first six months of 2009, MasterCard saw U.S. debit card-purchase volume increase 4.1%--to $160 billion--while spending via credit cards dropped 14.8% to $233 billion. Visa reported similar trends. Last spring, it announced that Visa debit card spending in the U.S. surpassed credit spending for the first time in the company's history. Debit payment volume last year was $206 billion, while credit volume totaled $203 billion. Analysts told the newspaper that the drive toward debit card use comes from:
* Cost-conscious consumers shifting their behavior to fit their current economic situation so they can save more and limit their discretionary spending. In July, the personal savings rate rose to 4.2% of after-tax income, from 1% early last year; * Consumers who don't want to carry cash or write checks that present more opportunities for theft than online spending; and * A backlash from consumers angered by recent credit card industry practices, including raising rates and fees, cutting credit lines, and forcing borrowers to go elsewhere.
TowerGroup, a Needham, Mass.-based financial services industry research firm, has predicted debit card use will increase through 2015. It found that in less than 15 years, debit card transactions in the U.S. grew to more than 50% of non-cash transactions, up from 1%.
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