Credit and Debit Cards Ate Cash. So What’s Eating Cards? | The Wall Street Journal
As Americans shift away from cash, we’re hitting an interesting milestone: for the first time, debit cards were used just as often as cash for small payments under $25. This trend suggests a broader shift in our payment habits, with cards often taking the lead. But here’s the kicker—while debit and credit card usage once skyrocketed, their growth has recently slowed. Before the pandemic, cards easily outpaced general spending growth, but the gap has narrowed since then. In 2023, cards only grew slightly faster than general consumer spending, leaving some to wonder if card growth is losing its edge.
One reason for this change is the pandemic’s influence on our habits. Many people have adapted to digital payment options like phone wallets and contactless cards to avoid handling cash. Public transit systems, like New York’s subway, even adopted tap-to-pay systems. But this trend might have hit its natural peak, with some people sticking to cash for certain purchases. According to the Federal Reserve’s 2024 study, cash payments might now have reached their “floor,” showing steady use despite technological advances.
At the same time, there’s increased competition for how we pay. Real-time payment networks and new digital payment solutions are expanding. While cards have adapted by becoming digital (think travel points, fraud protection, and handy dispute processes), other payment types are trying to grab a slice of the pie. Alternatives like buy now, pay later (BNPL) and cryptocurrency add to the mix. Interestingly, some of these innovations involve cards indirectly, with BNPL and crypto companies offering debit card-like options for easy spending.
Economics also plays a role in the future of the card industry. Inflation, for instance, has boosted spending in categories like housing and services, which typically don’t see as much card usage. If these trends persist, this could impact card growth. But payments companies aren’t waiting around—they’re diversifying. Visa and Mastercard, for instance, are investing in new flows and services like real-time bank transfers and fraud detection to drive growth even as card volume potentially stabilizes.
The landscape ahead is full of questions, especially with Visa and Mastercard’s upcoming investor events. Investors are eager to understand how these companies will continue to grow in a shifting market. Meanwhile, potential government regulations and lawsuits add an extra layer of uncertainty. In particular, credit card fees and rewards programs might face scrutiny, which could affect consumer behavior.
So, while cards have undoubtedly transformed how we pay, the future holds no guarantees. From new payment methods to regulatory challenges, there’s no telling if cards will maintain their reign or if a new contender will capture our wallets……….
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Rising Dough
If card growth continues to slow, how might this impact businesses that rely on card transactions, and what could it mean for the future of consumer spending and financial innovation?
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