The Death Of Credit Cards

By Douglas A. McIntyre Published Sep 9, 4:51AM EDT

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Government statistics have shown that for several months American have cut back on the use of credit. The news would seem to be bad for credit card companies, but there has not been much evidence about how bad.

New research shows that half of Americans with access to credit may quit using credit cards. That would be a serious blow to Visa (NYSE: V) and MasterCard (NYSE: MA) The trend could also hurt earnings at the consumer bank divisions of many large financial firms.

Research from Javelin Strategy shows that “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%.”

Suppose that the trend does not reverse itself and the future of consumer spending shifts from one of credit-based purchases to one of cash and debt-based buying. The change would almost certainly undermine what is already shaky consumer activity and could permanently change the way that people use their money.

A cash-based society would be a throwback to habits that have been gone for decades. The only debt that many households had half a century ago was their mortgages and in some instances their car loans. Banks began to gamble that they could create a way for consumers to buy goods and services and pay for them later. This became a large enough industry to support what the government shows is hundreds of billions of dollars of consumer debt facilitated by companies like American Express (NYSE: AXP) and the personal service groups at banks.

Suppose that the consumer moves away from credit card use in large numbers. The result would be a drop-off in retail activity, at least during the transition from the use of credit cards to cash-based buying. Consumers may start to think twice about their shopping methods. A consumer who considers a purchase based on the ability to pay is a consumer who may decide that the purchase is not worth the risk of repayment at all. The retail industry could be changed forever

Douglas A. McIntyre

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.