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Consumers Look to Credit Cards for Time, Not Money

In Payments Industry Stuff on March 23, 2011 at 9:54 am

Theodore Iacobuzio (Vice President, Global Insights at MasterCard) | March 15, 2011

(From MasterCard’s “The Heart of Commerce” Blog)

You heard it here first, folks.

The New York Times reported March 2 that “American shoppers did not shed their reliance on credit cards over the year-end holidays.”

As to why they used credit cards, The Times notes that “retailers tend to benefit from credit card spending, as it often means people are spending beyond their budgets.”

Let’s park the question as to whether retailers “tend to benefit” from selling goods their customers may have trouble paying for.

The reality is, U.S. consumers used credit cards last Christmas to manage their money. Every piece of market research that comes into MasterCard indicates that U.S. consumers-all of them-had the living daylights scared out of them over the past two and half years. They understand that credit cards give them the flexibility and convenience of extra time to pay their bills, for a price. That consumers are willing to use credit cards to pay for Christmas gifts doesn’t mean they’re “spending beyond their budgets.” In most cases, it means they are trying to manage their money better.

The Times’s point that, yes, consumers still do use credit cards, echoes my earlier post which took issue with press reports back in December indicating that consumers were going to use cash-legal tender, greenbacks-to pay for Christmas gifts.

Consumers, though they used the word “cash” when talking to reporters, weren’t talking about tender; they were talking about their commitment to financial responsibility. In other words, their intention was to pay in full, or in installments, rather than revolve into the ozone. They were always planning to pay with plastic. And they paid not just with any plastic, but with credit cards. At least that’s what the data say.

It could hardly have been otherwise for holiday spending to be as robust as it was. MasterCard SpendingPulse reported holiday spending rose 5.5% last year over the 2009 season. So the notion of people counting out twenties at checkout for holiday gifts does not bear scrutiny. The degree to which e-commerce performed last Christmas belies the notion altogether.

At point of sale, or online, U.S. consumers as a group are trying to manage expenses versus income. And credit cards help them perform that task.

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