2013: What's in the (credit) cards for you?
How changes in offers, spending, technology will impact your wallet
By Fred O. Williams
Smartphone magic that lets you breeze through checkout
lines? Higher barriers against rapacious
Changes are coming for credit cards and the people who use them in 2013, as new ideas and technologies push to improve costs and convenience.
Overlay this trend on a shifting regulatory landscape, plus an economy that is being rattled by political battles, and the road ahead could be full of bumps and twists.
One of the biggest unknowns is how much we'll be using credit cards in the first place. Households have slimmed down their bloated debt levels since the Great Recession of 2008-2009, and the economy has bounced back somewhat. But questions persist about whether the frightening downturn put a long-term damper on people's outlook. Consumer credit card balances overall reached a 10-year low in the second quarter of 2012 before ratcheting up somewhat, as consumers continued to buff up their household balance sheets.
"We still see consumers taking very conservative positions regarding debt," said Patricia Hewitt, director of Mercator Advisory Group's debit advisory service. "We really think there's a permanent change in the way people approach these (debit and credit) products."
Mercator projects growth of 4 percent to 6 percent in credit card charges in 2013. But with consumers still debt-shy, the increased use of cards is not expected to jack up people's outstanding balances. That's good news: More of us are expected to learn how to pay off our balances monthly.
We interviewed analysts and plumbed reports for other predictions and key takeaways.
- Interest rates have only one direction to move
- Digital wallets, prepaid cards gain ground
- Card offers remain dim, with some bright spots
- Mobile smartphone payments are dawdling
- Consumer watchdog put on tighter leash
The big picture:
One key to making consumers more comfortable about the economy will be the health of the job market, Hewitt said. But the outlook there is not especially bright. The Federal Reserve's core projection for 2013 is that jobless rates will improve only slightly or flat-line in 2013, with a predicted range of 7.6 percent unemployment to a high of 7.9 percent -- about the same as the jobless rate near the end of 2012
With inflationary pressure low, interest rates - including the benchmark prime rate, currently at 3.25 percent -- should remain stable, according to a panel of 44 forecasters polled by the National Association for Business Economics. This in turn would hold rates on variable-rate credit cards in check. However, longer-term rates are expected to rise somewhat as the Fed approaches the end of its period of "exceptionally low" rates in mid-2015. Rates on the 10-year Treasury note, a widely watched benchmark, are expected to climb to 2.3 percent by the end of 2013, from about 1.7 percent now.
We still see consumers taking very conservative positions regarding debt.
Mercator Advisory Group
"People just need to ignore what's going on in Washington and pay attention to what's happening on the ground," said Matthew Shapiro, president of the financial adviser MWS Capital LLC in the Chicago area. He cites rising rates of household formation as a key factor that will lift jobs and brighten the picture for consumers. "People are going to feel much better than they have about housing," he said.
The consensus view from economists is less glowing than Shapiro's outlook, but still positive. Political battles over federal spending and debt levels are expected to continue into 2013, but should leave the economy only lightly bruised. The high cost of failing to work out some budget compromise is expected to compel Washington to cobble together something that staves off crisis, although it may fall short of a long-term fiscal solution.
What you should watch for and do:
If general interest rates begin to move back upward it becomes more expensive to carry a balance, as most credit cards are linked to a variable rate. That makes it even more important to pay down balances and take other steps to limit interest charges on cards. Consider moving debt to a balance transfer card to take advantage of the introductory zero interest rate, to buy time to pay off the debt.
The big picture:
Card alternatives that people are adopting seem to share a common denominator: They help you manage an increasingly complex financial life. Digital wallets and reloadable prepaid cards had a big year in 2012, and analysts expect to see more strides in 2013.
With online and real-world commerce becoming more integrated, the digital wallet is gaining traction. The convenience feature is managing different forms of card payments and navigating more easily between online and real-world shopping.
A screenshot from Google Wallet
Even Google Wallet, conceived as a mobile payment solution, looks to be repositioning as a cloud-based wallet that can be used in stores -- using traditional card technology -- or on the web, analysts at Keefe Bruyette & Woods said in a December report. And starting in 2013, PayPal users will be able to make payments in stores using the Discover network, in another example of crossover between e-commerce and brick-and-mortar retail.
As reward programs proliferate, wallet ideas like Wallaby could win converts, said Andrew Davidson, senior vice president of Mintel Comperemedia. The cloud-based wallet handles your cards and analyzes how a given transaction will generate points, cash back or airline miles. It chooses the best option based on preferences you set. "In a complex rewards landscape, with airline loyalty (and) 5-percent cash back -- you might spread your spend over different cards," he said.
Prepaid cards are also set to advance in 2013, after making strides into the mainstream in 2012, analysts said. Once thought of as store-specific gift cards, prepaid cards with a reloadable feature are being seen as an alternative to traditional checking accounts, as big banks launch cards that are accepted across major payment networks. In 2012, major players including Chase, U.S. Bancorp and American Express launched prepaid cards, leading to improved prices for users and vaulting the cards from a niche to the mainstream, KBW's analysis said.
As for gift cards, Democrat-backed legislation was introduced in the U.S. Senate near year-end to extend expiration dates from five years to never, and to prohibit inactivity fees that erode the cards' value. The measure would also block companies in bankruptcy from issuing new cards, and require them to honor old ones. The measure has support from consumer groups, but bank groups call it unworkable, and analysts don't expect it to pass in its current form.
What you should watch for and do: If you are paying fees for a bank account now, check into using a reloadable prepaid card instead. Weigh cards that charge transaction fees against those that charge a monthly fee. Depending on your financial habits, you could save money compared to the costs of your current bank fees.
The big picture:
Expect it to be harder to find a really great credit card balance transfer deal or a big sign-up bonus -- but good offers are still out there. That's the take from Davidson at Mintel Comperemedia. Offer volume -- which is likely to remain at sub-2011 levels -- is targeted mainly at higher-end customers, as the subprime market has not bounced back from the recession.
"One interesting trend we're seeing, even though offers are going to the same customers, they're slightly less favorable than they've been in the past," Davidson said. For example, there are fewer balance transfer cards with a lengthy, 21-month introductory interest-free period, as issuers pare back the period to the 12-, 15- or 18-month range. And sign-up premiums worth hundreds of dollars in points and rewards, seen on some card offers in 2011, have become rarities. And typical interest rates remain near 15 percent.
"There are still very good offers -- the bulk have no annual fee and most have zero (introductory) APR," Davidson said. "But within those that have a fee, the fees are increasing." He is seeing annual fees settle at $95 (after introductory discounts) for cards that offer features such as priority boarding and airline club access for travelers, as well as extra points or miles. That could represent a savings over the high-end cards with even more robust features that come with fees in the $450 neighborhood. "They're cutting into that elite segment with more and more tier pricing," Davidson said.
One interesting trend we're seeing - even though offers are going to the same customers, they're slightly less favorable than they've been in the past.
The volume of card offer mailings, a barometer of overall activity, is expected to flat-line into next year from its current reduced volume. "As we get on a more solid footing (economically), we'll probably see a slight increase," Davidson said. Analysts at Credit Suisse project a 10 percent uptick in mailings over 2012.
Card issuers will be watching the performance of innovations such as Barclaycard's Ring, which was announced in March of 2012 as the first "social" credit card, and which could be the model for a new type of card offering. Using strategies from the social networking world, Ring is built on having simple terms -- 8 percent interest on all balances, for example - and shares profits generated by user behavior, such as opting for paperless statements. Ring made its first profit distribution to holders of $22,000 in November, split among 1,400 customers -- more than 30 received credits of over $100. "I think it's early days," Davidson said, but the idea of motivating cardholders with a share in the card's financial success is "intriguing."
What you should watch for and do:
Don't be complacent about your current card. Offers are changing rapidly and sign-up bonuses are still available with some of them, so evaluate the benefits you are getting now with a critical eye.
The big picture:
Technology marches on -- but its pace has slowed to a grudging shuffle where mobile payment systems are concerned. Paying at cash registers with a wave of your smartphone has been ballyhooed as the wallet of the future, and that's where you'll see the technology in 2013 -- still off in the future.
In fact, it may be pulling further away. One analyst just pushed back its forecast for widespread adoption of the technology after Apple's iPhone5 debuted without a built-in chip for wave-and-pay phone transactions -- known as "near-field communications" or NFC in geek-speak.
"Retailers say, 'If Apple's not going for it, why should we?'" said Windsor Holden, research director at Juniper Research. "It could be perceived as a lack of confidence in the payment marketplace." His report cut the outlook for near-field mobile transactions by 40 percent -- now Juniper projects the transactions will reach $110 billion globally in 2017.
Only about 1 percent to 4 percent of people are using some form of mobile payment currently, according to a Vantive/Mercator report, and the most common payments are via the mobile web or a retailer's app, not at the checkout register. Ideas such as Google Wallet -- with its short list of eligible phones and participating retailers -- are waiting for some trigger that will put widespread consumer demand behind smartphone payments.
The hurdle for smartphone payments is that retailers, financial institutions and payment processors need to work together to adopt the technology, but consumers aren't pushing them to do so. In fact, as 2012 wound down, Verizon was in a spat with Google over blocking Google Wallet from Verizon phones.Verizon is testing its own mobile wallet called Isis, a potential competitor to Google.
For many shoppers, mobile phone payments may be a solution looking for a problem. A quarter of respondents in the Vantive/Mercator survey said that mobile wallets would be convenient, but only about 12.5 percent said they'd rather pay with a smartphone than a card. Retailers, facing higher costs to update their point-of-sale systems, are not eager to spend the money unless customers are clamoring for the technology.
What you should watch for and do:
Don't worry if you are not in the vanguard of this new payment technology. Until more retailers are on board with mobile payments, the advantages of wave-and-go payments are limited. It doesn't make you a Luddite to wait until this idea gains more followers.
The big picture:
If the credit card industry does not follow the Ring card and adopt transparency as its business model, regulators will still have a role to play. The year 2012 saw a big expansion of protection, as the federal government's new consumer financial watchdog started to exercise its enforcement powers -- and the focus of its efforts was the credit card industry.
We're very keen on protecting the CFPB from any effort to water it down or restructure.
Center for Responsible Lending
Even so, 2013 could be a year of retreat for the bureau, which is hampered by a political liability. Director Richard Cordray's recess appointment, done without benefit of Senate confirmation, is vulnerable to challenges. Some analysts think the bureau might even relinquish its single-director structure in a compromise move, adopting the five-commissioner, two-party system in place at other federal regulators. But consumer advocates want to keep the bureau strong and, as part of the Federal Reserve, insulated from congressional budget pressures that can undercut regulatory toughness.
"We're very keen on protecting the CFPB from any effort to water it down or restructure," said Kathleen Day, spokeswoman for the Center for Responsible Lending.
Another big question is whether the regulator will turn its attention to the burgeoning market for reloadable prepaid cards, which have quickly become an alternative to standard bank accounts for many people. The bureau began a rulemaking process this year, but some observers expect it to remain busy with mortgage regulations before settling down to prepaid cards. "I think they want to get there, but it will probably be a stretch in 2013," said Suzanne Fay Garwood, a partner at law firm Venable, which publishes a "CFPB Watch" newsletter.
Major companies entered the prepaid card arena in a big way 2012, and the competition helped lower costs for consumers. For example, Chase launched its Liquid card with a $4.50 monthly fee, and American Express followed with its Bluebird card, which charges for certain transactions instead of a recurring fee.
"The products have gotten better, said Joseph Valenti, director of asset building at the Center for American Progress and the co-author of a paper, calling for regulation. "There are a lot more cards on the market."
What you should watch for and do: Complaint information published by the consumer bureau adds a new dimension to comparison shopping. You can check complaints made against credit card issuers now on the agency's website.
See related: 10 ways to make financial resolutions stick
Published: December 31, 2012
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