Impact of COVID-19 on The Credit Card Market

Aug 12, 2020

Payment Systems for Credit Unions or (PSCU), in an effort to determine the COVID-19 pandemic’s impact on both shopping trends and consumer spending, issued data that reflected the decline of U.S. card growth rates for the week ending in June 28, 2020. All debit card purchases went back to a “negative growth”.

As per a statement from Glynn Frechette, SVP with PSCU’s Advisors Plus team, there were also declines in consumer transactions in many of the reviewed merchant categories. These included travel, drug stores and entertainment sectors. Although there was an “eleven-week growth trend” this was quickly halted by a drop in credit card transactions. 

On A Positive Note

In a PSCU news release, it showed that U.S. consumers continued to have “strong usage of card-not-present (CNP) alternatives”. Also, “debit card CNP volumes had its 12th consecutive week of growth above 30%.”  PSCU also discovered that customers are using less cash as their preferred form of payment. 

Frechette believes that the dip in card growth rates and consumer transactions is attributed to the “pullbacks of state openings”. This is all due to a recent spurt of COVID-19 cases throughout most of the country. 

In the COVID-19 “hot zones” or specific areas throughout the country experiencing significant viral spread, there was some marked difference in data. 

U.S. overall spending saw an increase at 12% for debit transactions. Credit card transactions were down to 6%. The eight states that were slammed with the most COVID-19 cases were California, Connecticut, Illinois, Washington D.C, Michigan, New Jersey, and New York. These states experienced a rise in debit spending by 5.1%. Credit spending declined by 9.1%. 

Newest Credit Card Trends To Increase Use

Despite the drop of credit card use, major credit card companies such as Discover, Mastercard, American Express, and Visa, plan to roll out innovative advancements such as wider launch of contactless cards and quicker online checkout features. 

Here are the following trends to look out for:

  • Expanded use of contactless cards: Luke Gebb, SVP of digital labs at American Express released the results of a 2019 digital payments survey and found that 26% of customers have used contactless payments at least once. In the next 12 to 18 months, Mastercard said that “almost all of our cards” will have the contactless RFID capability. It will also feature “tap and go” at all participating New York subways. 
  • Release of Digital First credit cards: These can be used “instantly” at point of sale. By using the Apple Card, it “lives” within your iPhone and it is managed by the Wallet app. Cardholders will receive more rewards if they use the mobile version of the card as opposed to the physical card. Upon minutes of getting approved, you can use the “digital representation” of the card at the point of sale. 
  • Improved security with tokenization: Tokenization occurs when a credit card number is replaced with a “unique non-sensitive identifier,” also known as a token. This token enables payments to be processed without revealing personal account numbers that could be stolen by hackers. 

In Summary 

Despite the drop in credit card use, debit card use is on the rise. COVID-19 continues to have a significant impact on consumer behavior and how they choose to pay for their needs. Credit card companies are closely watching the growing trend in card-not-present transactions and are providing innovative ways for consumers to purchase with safety and convenience.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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