Inflation Driving Up Credit Card Use; California Embraces Cryptocurrency

Struggling to Pay Bills, More Americans Turn to Credit Cards and Loans

Inflation in the U.S. is more than three times higher than it was last year, straining Americans’ finances. Without stimulus checks and a lapse in monthly Child Tax Credit payments, Americans in dire financial circumstances are swiping credit cards more frequently compared to a year ago. But they continue to hold back from dipping into savings and retirement accounts relative to last year. A year ago, fewer struggling Americans paid for everyday expenses with a credit card. [USA Today]

Americans Lowered Their Credit Card Debt Since the Pandemic, But Inflation Could Reverse the Trend

Nationwide, credit card balances have typically totaled roughly $800 billion over the past five years, according to the New York Fed. From the first quarter of 2020 to the first quarter of 2021, credit card balances fell nationally by $123 billion, or nearly 14%, the biggest single-year drop since 2001. The share of newly delinquent credit card accounts began falling in the second quarter of 2020, when the pandemic was getting into its early full swing. This downward slope has continued since. As of the last quarter of 2021, it stood at 4.1%, the lowest in at least 18 years, according to the New York Fed. Furthermore, the share of credit card accounts being charged off — when a bank writes off a seriously delinquent debt as uncollectible — has fallen below 2% for the first time since at least 1985, according to data from the St. Louis Fed. [Nerd Wallet]

California Moves to Embrace Cryptocurrency and Regulate It

California, which has a economy larger than all but four countries and where much of the world’s technological innovation is born, on Wednesday became the first state to formally begin examining how to broadly adapt to cryptocurrency and related innovations. Following a path laid out by President Joe Biden in March, Gov. Gavin Newsom signed an executive order for state agencies to move in tandem with the federal government to craft regulations for digital currencies. It also calls for officials to explore incorporating broader blockchain computer coding into the government operations. [Associated Press]

Fed Issues Biggest Rate Hike in 22 Years

The Federal Reserve said Wednesday it is raising interest rates by a half-percentage point to get a handle on the worst inflation America has seen in 40 years. It’s the first time in 22 years that the central bank has hiked rates this much. The decision was unanimous, with all 12 members of the policy-setting Federal Open Market Committee agreeing on it. In March, the Fed ramped up its benchmark borrowing rate for the first time since late 2018, increasing it by a quarter-percentage point. [CNN]

Starbucks Customers Have More Than $1 Billion Sitting on Gift Cards

Starbucks just revealed that a whopping $1 billion is sitting on Starbucks gift cards unused. Interim CEO Howard Schultz told investors in a second-quarter earnings call that the cards are used by over 120 million people. Customers purchased 46 million cards in 2020, totalling $12.6 billion in gift cards for the year. Starbucks cards by themselves are bigger than the entire gift card industry, Schultz said. Gift cards can be a boon to retailers, as recipients often don’t use the full amount. This essentially gifts free money to the card issuer as nearly 40% of 18 to 29-year-olds lose their gift cards before they can spend them, and around 25% of 30 to 64-year-olds do the same. [Business Insider]

E.U. Hits Apple with Antitrust Complaint over Mobile Payments

European regulators on Monday accused Apple of abusing its dominant position to restrict the ability of competitors to access the digital wallet technology behind Apple Pay, a move that potentially opens it up to significant fines. In a “statement of objections,” which represents a preliminary conclusion to an investigation, the European Commission said Apple tried to restrict the “tap and go” technology that plays a major role in its success in mobile wallets, a growing segment of the economy. Margrethe Vestager, the European antitrust chief, said that Apple may have restricted third parties from accessing the key technology needed to develop mobile wallet alternatives for its devices. [The Washington Post]

U.S. “Open Banking” Rule Bogged Down by Privacy Concerns

A long-awaited U.S. “open banking” rule that could dramatically boost consumer finance competition and increase Americans’ access to financial services is being held up by privacy concerns, according to five people with knowledge of the matter. The Consumer Financial Protection Bureau rule would allow consumers to easily share their financial data with third-parties. This would remove a key obstacle to switching service providers that might offer lower fees. Advocates say open banking will make it easier for non-banks like technology companies to compete with traditional financial institutions, lowering costs and boosting millions of Americans’ access to financial services. [Reuters]

29% of Consumers Usually Revolve Credit Card Balances

Paycheck-to-paycheck consumers are three times as likely to revolve credit card debt and carry higher monthly balances, according to a new study. Consumers who never pay their credit balances in full also tend to hold more credit cards than average, according to the research, which also finds that 29% of credit card holders “always” or “usually” revolve their balances. Paycheck-to-paycheck consumers who pay their bills with no issues report an average spending of $3,100 and a limit of $6,500. Consumers who don’t live paycheck to paycheck report an average spending of $2,100 and a $9,000 limit. [PYMNTS]

Buy Now, Pay Later Services Are Retailers’ Next Great Hope

Buy now, pay later services, which offer shoppers a financing solution and credit card alternative, have been embraced by more than 100 million people around the globe in less than a decade. Most BNPL companies operate two consumer products: an interest-free offering, which breaks up a purchase, typically a smaller-scale transaction, into three or four equal payments; and interest-based installment loans, which spread out the cost of larger purchases, like furniture. Market leaders Affirm, Afterpay (which Block, formerly Square, acquired for $29 billion), and Klarna are now ubiquitous on e-commerce sites. Meanwhile, leading digital wallets PayPal and Apple Pay are pursuing their own BNPL products. Affirm shares tanked 10% in July of last year when Bloomberg reported Apple’s intention to launch a pay-later product with Goldman Sachs. [Fast Company]

Mastercard Beefs Up Its Defenses Against First-Party Fraud

Mastercard is building more capabilities around fraud detection as part of a strategy to win more business from companies that might otherwise turn to fintechs for the same services. In addition to competing against fintechs, Mastercard is also in a tech arms race with Visa, which is similarly upgrading its fraud-detection capabilities. For Visa and Mastercard, managing identity for fast-moving digital commerce transactions is also a way to demonstrate utility beyond payment processing. [American Banker]

Senators Grill Visa, Mastercard Execs over Swipe Fees

Senators on Wednesday scrutinized Visa and Mastercard for raising swipe fees on merchants, costs that they say will be passed down to consumers amid surging inflation. Senate Judiciary Committee Chairman Dick Durbin (D-Ill.), a longtime critic of the credit card giants, called for new rules to inject competition into the credit card industry and prevent “unreasonable” fees. On April 22, Visa and Mastercard changed their interchange fees, which are tacked onto every credit card transaction to compensate issuing banks and pay for consumer rewards and anti-fraud measures. Visa reported cutting fees for most small businesses while Mastercard said it lowered fees on transactions below $5, but the changes still amount to a $475 million annual fee hike for merchants. [The Hill]

Crypto.com Is Significantly Lowering the Rewards of its Popular Debit Cards

Crypto.com announced Sunday that its Crypto.com Visa debit cards will soon be less enticing. Starting June 1, 2022, the suite of debit cards will earn significantly lower rewards, and rewards for the Ruby Steel and the Royal Indigo/Jade Green cards will now have a monthly rewards cap. Starting June 1, the Ruby Steel and Royal Indigo/Jade Green cards will have a monthly rewards cap of $25 and $50 respectively. The limits will reset on the first of every calendar month. The card rewards will also be dramatically lowered. [ZD Net]

Capital One Presses on with Credit Card Marketing Blitz

Capital One Financial spent more on marketing at the start of the year than analysts expected, with executives saying they’ve been “leaning hard into” opportunities to gain new credit card customers. In its first-quarter earnings release, the company reported $918 million in marketing costs. While that number was down 8% from the nearly $1 billion it spent the prior quarter, the level of spending reflects Capital One’s plans to press on with its marketing surge from late last year. [American Banker]