Recession Spurs Rise of the “Cautious Consumer” as Credit Card Usage Hits All-Time Low

According to a new Javelin Strategy & Research report issued today, the pain of the recession has produced a risk-adverse, cash-hoarding “cautious consumer” that is dropping credit cards and opting for “pay-now” payment alternatives such as cash, checks, debit, prepaid and gift cards at a higher rate than ever before.

The report, “Payment Card Issuer Strategies 2010: The Rise of the ‘Cautious Consumer’”, documents a clear, and potentially permanent, shift in consumer spending behavior as a direct result of the recession. Javelin’s research found that consumer credit card use is at an all-time low as options such as reloadable prepaid cards have become more important for consumers looking to stay in control of their finances. This marked shift in spending behavior will continue to drive new trends in payment innovation, particularly in the face of new regulations such as the CARD Act, the Durbin Amendment and modifications to Reg E and as card issuers seek to repair their image by offering incentives that address the new needs of the “cautious consumer.”

“Javelin’s research shows that as the economy recovers, many credit card-wary, cash-hoarding consumers have the means, but simply lack the motivation to spend,” said James Van Dyke, President and Founder, Javelin Strategy & Research. “The upside is that consumers can look forward to new offers such as lower fees, increased rewards, and reduced rates as credit card issuers scramble to adjust their strategies and look for new ways to court consumers and reinvigorate spending.”

Key Findings of the Javelin Strategy & Research Report:

• Among the 11% of consumers who claim they have an increased ability to put funds into savings, 46% have decreased the use of their credit cards, and 51% have decreased their spending on discretionary goods, such as entertainment, travel, luxury items and cars.

 

• Credit card use among consumers decreased 31% between 2007 and 2009 (87% in 2007 down to 56% in 2009); if this rate of decline continues through year end, credit card use will fall below 50%.

 

• The top two most populous states, California and Texas — representing almost 20% of the U.S. population — are among those in which credit card use has declined as the collapse of the housing market and rising unemployment rates have contributed to increasingly cautious consumer behavior.

 

• Fee sensitivity is paramount in the selection of a new card issuer, as 80% of consumers cited “no annual fee” as the most important criterion when choosing a new credit card.

 

“The recent passage of widespread financial reform targeting payment cards is not just impacting the way consumers behave, but is transforming the entire payments landscape,” said Beth Robertson, Director of Payments Research, Javelin Strategy & Research. “In addition to reassessing their entire debit and credit card portfolios and opportunities for prepaid adoption, the industry now has an imperative to innovate, finding new payments options or structural alternatives that will drive revenue.” This latest Javelin report provides insight into these and other strategies issuers can adopt to be successful moving forward.

About Javelin Strategy & Research

Javelin provides superior direction on key facts and forces that materially determine the success of customer-facing financial services, payments and security initiatives. Our advantages are rigorous process, independent position and expert people. For more information about this or other Javelin reports, please visit www.javelinstrategy.com/research or contact Liz Travers at (925) 225-9100 ext. 31 or etravers@javelinstrategy.com.

Note: To arrange an interview with a research analyst and/or view available research (available to qualified members of the media), please contact Liz Travers at (925) 225-9100 ext. 31 or etravers@javelinstrategy.com