Perceptions of Payments
Perceptions of Payments In addition to asking about payment use, the SCPP asks a series of questions on individual perceptions of payment instruments. The responses to these questions allow us to explore the underlying reasons for the payment behavior that consumers report. For each payment instrument, respondents were asked whether they view it as: easy to use, widely acceptable, safe, allowing control over money, helping in budgeting, and easy to get refunds or resolve disputes (for the design of these survey questions, please see the appendix). Individuals responded either yes or no to each question, for each payment instrument. ( credit card)
The perceptions of payments elicited in the SCPP provide an opportunity to see what consumers view as salient features for each payment instrument and to see how these perceptions affect payment use. For the purposes of this paper, we are primarily interested in the consumers’ perceptions of debit cards and credit cards. ( credit card)
We use responses to the above perception questions to generate six binary variables 9 that are equal to 1 if the respondent answered “Yes,” and 0 if the respondent answered “No”; these variables are: Easy, Acceptable, Safe, Control, Budgeting, and Refund. Further, we generate binary variables that are equal to 1 if the survey respondent answered positively in the case of debit and negatively in the case of credit—that is, they show whether or not the respondent perceives a clear difference between debit and credit, and perceives debit as superior. ( credit card)
The following six variables are used in our analysis of perceptions: DebitBetterEasy, DebitBetterAcceptable, DebitBetterSafe, DebitBetterControl, DebitBetterBudgeting, and DebitBetterRefund. Table 3 shows summary statistics of these variables, broken down by revolving behavior, for individuals with non-missing socio-demographic characteristics. Individuals with revolving balances are significantly less likely to see debit as superior to credit with respect to ease of use and acceptability, significantly more likely to see debit as being better with respect to control over money and budgeting, and to see no significant difference between the two payment methods for safety and ease of refunds. ( credit card)
The t-tests presented in Table 3 indicate that individuals with revolving balances are significantly more likely to view debit as better than credit in terms of budgeting and control over money. These may be key perceptual differences associated with revolvers’ substitution of debit for credit. In the next section, we further explore differences in payment behavior associated with revolving balances, controlling for socio-demographic characteristics and participation in rewards programs. We also study how perceptions are related to revolving behavior, controlling for socio-demographic characteristics and rewards program participation. ( credit card)
Purchase volume Purchase volume has grown much faster than debt, both since the recession and over the longer term. To illustrate a longer time series on purchase volume than the Y-14 permits, we use data from The Nilson Report, an industry standard source of credit card data.6 Figure 3 shows annual purchase volume on general purpose and private label cards from 2000 onwards. 6 Data on purchase volume are not included in the CCP. $594B $710B $50B $87B 2005 2007 2009 2011 2013 2015 2017 $0 $200B $400B $600B $800B General purpose Private label 34
CONSUMER FINANCIAL PROTECTION BUREAU — CONSUMER CREDIT CARD MARKET REPORT FIGURE 3: ANNUAL CREDIT CARD PURCHASE VOLUME (NILSON)
Apart from a brief reduction in 2009, annual spending on credit cards in the U.S. has risen steadily over the past 16 years. General purpose purchase volumes have nearly tripled since 2000 to exceed $3 trillion. Private label purchase volume has grown nearly 72% over the same period.7 Growth in purchase volume has consistently exceeded growth in outstanding credit card debt. This is particularly true for the post-recession period. From 2010 to 2016, purchase volume grew nearly 64% whereas cycle-ending balances grew at only half that rate. This phenomenon is driven by general purpose cards. Growth in private label spending has actually lagged growth in outstanding private label debt since 2005.
The discrepancy between purchase volume and debt levels suggests that, especially in the wake of the recession, consumers have been increasingly making credit card purchases even as they do not intend to incur long-term debt as a result of making those purchases. That may be because consumers, especially consumers with higher credit scores, are increasingly using credit 7 Notwithstanding some definitional differences, the Board’s triennial Payments Study confirms these same general trends.
This study reports 2015 purchase volume as $2.8 trillion on general purpose cards and $0.28 trillion in consumer transactions on private label cards. This compares to just over $1 trillion in general purpose volume and $0.16 trillion in private label volume in 2000. This study also notes that nearly half of all general purpose credit card volume in 2015 was “remote,” a large increase from the approximately 30% figure reported in 2009. See Press Release, Federal Reserve Board, The Federal Reserve Payments Study 2016: Recent Developments in Consumer and Business Payment Choices (June 30, 2017), available at https://www. federalreserve.gov/newsevents/ pressreleases/files/2016-payments-study-recent-developments-20170630.pdf. $1.1T $3.1T $120B $206B $0 $0.5T $1.0T $1.5T $2.0T $2.5T $3.0T $3.5T 2000 2002 2004 2006 2008 2010 2012 2014 2016 General purpose Private label 35
CONSUMER FINANCIAL PROTECTION BUREAU — CONSUMER CREDIT CARD MARKET REPORT
cards for purchases that would otherwise have been made using other media, such as debit cards, cash, or checks. In addition, it may be related to the increased prevalence of both credit card rewards and online commerce, both of which we discuss in more detail later in this report. It may also, or instead, reflect a greater reluctance to incur debt relative to spending levels on credit cards, independent of any substitution of credit cards for other payment media. 2.1.3 Accounts As of mid-2017, despite the return to pre-recession levels of debt and the significant increase in purchase volume, the total number of open accounts remains well below its pre-recession high. This is primarily driven by relatively slow growth since the recession in the number of private label cards.
The private label market is much smaller than the general purpose market, both in terms of debt and purchase volume. In terms of accounts, however, the private label market is more than half the size of the general purpose market. Figure 4 shows trends in open account numbers for general purpose and private label cards. FIGURE 4:
OPEN CREDIT CARD ACCOUNTS (CCP)
Since 2011, the number of open general purpose credit card accounts has increased steadily, although the number of open accounts has not yet returned to its previous high of 471 million 421M 434M 308M 225M 0 100M 200M 300M 400M 500M 2005 2007 2009 2011 2013 2015 2017 General purpose Private label 36
CONSUMER FINANCIAL PROTECTION BUREAU — CONSUMER CREDIT CARD MARKET REPORT
observed in the third quarter of 2008. Total open private label credit card accounts began to increase from 2012, but the increases have been less substantial, reaching 225 million by mid2017. This is significantly below the previous high of 338 million in the second quarter of 2008, as well as below levels observed before that point in time.8 2.1.4 Credit line A credit line is the total amount of debt that a consumer is permitted to incur on an account, whether or not the consumer actually does so. (A consumer’s credit line is sometimes referred to as the consumer’s “credit limit.” We generally use those terms, as well as the shorthand terms “line” or “limit,” interchangeably.) Figure 5 shows trends in total line through mid-2017.
TOTAL CREDIT LINE ON OPEN CREDIT CARD ACCOUNTS (CCP)
Aggregate general purpose credit card line has risen steadily to $3.5 trillion from its low point of $2.6 trillion in the fourth quarter of 2010. Despite this significant growth, total general purpose 8 This fall may be attributable in part to a shift in private label practices. During and after the recession, private label issuers adopted practices and policies that led to inactive accounts being closed much more readily than was previously the case. Our market monitoring suggests that there was not a parallel shift in practices among general purpose issuers. There was a one-time wave of general purpose closures associated with the recession. But there was no associated broad-based change in ongoing practices to speed the closure of inactive accounts in the future. $3.1T $3.5T $0.52T $0.58T $0 $1T $2T $3T $4T 2005 2007 2009 2011 2013 2015 2017 General purpose Private label 37
CONSUMER FINANCIAL PROTECTION BUREAU — CONSUMER CREDIT CARD
MARKET REPORT line remains below the previous high of $3.8 trillion observed in 2008. The same is true for private label cards. After a contraction following the recession, private label credit card lines have rebounded to $584 billion, but remain below figures observed in 2007 and 2008. Total private label line is significantly lower than the total line on general purpose cards. This reflects both the substantially lower average credit line on these accounts compared to general purpose cards (which is discussed further in Section 4) as well as the smaller number of total open private label accounts, as shown in Figure 4.