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Lower Spending Could Mean Less Profit for Payment Processors

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The amount of money being spent by consumers on their credit cards has remained relatively low since the end of the recession, even as the economy has continued to make significant improvements, which could cause a sea change for banks and payment processors.

Experts say that Visa and MasterCard could see first quarter profits slip somewhat when earnings are announced later this week, largely as a result of consumers continuing to stick to their new credit card spending habits, according to a report from The Associated Press. The reason credit card spending habits may be troublesome to the two companies—the world’s largest processors of debit and credit card transactions—is that spending largely isn’t happening.

Data from the Federal Reserve Board shows that the value of purchases on these cards slipped by $5 billion in January and February, and the total amount owed on these accounts stood at just $799 billion at the end of the latter month, the report said. That’s 15 percent below the total observed in December 2007, when the recession first began.

Instead, when it comes to making day-to-day purchases, it seems consumers are turning instead to their debit cards, which don’t make payment processors as much money as credit card transactions because of federal rules that limit interchange fees for debit purchases, the report said. But that’s of little concern to consumers, who significantly changed their borrowing habits in the wake of the recession and instead concentrated on getting out of debt and avoiding taking on any more than they had to—this is reflected in the record low defaults reported by all of the nation’s top credit card lenders.

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As a consequence, many cut use of their credit card accounts altogether and have been reluctant to return to this type of borrowing even as the economy continued to improve. Those who have started spending again have also become what are known in the industry as “transactors”—that is, people who use their credit cards to make purchases but are careful to pay off whatever balances they may incur at the end of every month. “Revolvers” are the opposite of transactors, in that they tend to carry balances over from one month to the next.

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