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Impact of COVID-19 on The Credit Card Market

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.