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1. Virtual Currencies
- With the integration of virtual worlds like Facebook and Twitter into the physical worlds of nearly 400 million users, social media and digital content have created a new market for virtual currencies. In 2010, we will see more virtual flowers sent to mom, more Christmas trees gifted online, and more gifts exchanged through virtual worlds. Note – KITN Media recently acquired virtual currency service provider, Super Rewards for a rumored $30 million.
2. Digital Content and Games
- With Zynga’s FarmVille gameon Facebook accounting for more active users than Twitter, (69 million active users), online entertainment will continue to grow, and as a result we’ll see more ways to ‘pay for play’. Note – FarmVille’s rival Playfish was recently acquired by Electronic Arts in a deal valued at up to $400 million.
3. Pay By Mobile Phone
- The mobile payment channel is one to watch in 2010, as more wireless carriers enter the payments space, much like ILD Teleservices’ LEC billing is to the landline, we’ll see more wireless devices used for ecommerce and social entertainment.
4. Credit Card Transaction Decline
- While we are a plastic dependant society, “cash is king”, and with 45% of consumers telling Consumer Reports that they are paying less with credit than last year, we will see more credit card account closes and more prepaid and direct bill payment options.
5. Credit Card Companies Look to Alternative Payments
- Credit Card companies like Visa and MasterCard will look deeper into alternative payment methods, following the footsteps of the acquisition of Revolution Money by American Express for $300 million.
The death of the credit card is inevitable.
You don’t agree? Read this 3-part series.
The oldest payment method in civilization is making a strong comeback. No, not gold (that’s for another post). Rather, the concept that if you are going to buy something, you’re going to have to pay for it. Consumers are shifting away from the “borrow and buy” mentality back to the “cash and carry” model which has been used for civilizations.
If back in the day, you didn’t have the money to pay for merchandise, then you went without. Not the norm anymore, given all the plastic in our wallets. Believe it or not though, consumer credit is still a relatively recent phenomenon – for how much longer we have to ask? To answer that, we’ve got to understand the history.
History.
The first modern consumer credit cards were developed only 60 years ago (in the 1950’s) with Diners Club, followed by American Express, then Bank of America (“BofA”) with their BankAmericard (which is now Visa) close behind. In an effort to capitalize on the “all-purpose credit card”, companies started dropping preapproved credit cards to unknowing consumers. BofA, for example mailed over 60,000 preapproved cards to folks in Fresno, California, although those consumers never asked for them. Others again followed suit, and the next thing you know the scams started - people are stealing credit cards out of mailboxes, consumers are getting billed for cards they never knew they had, and a black market began in stolen credit cards and identity theft.
Things got a little better in the 70’s, when Congress began regulating the credit card industry. For starters, they banned the practices of mass mailing active credit cards to those who had not requested them (some of whom were even dead). However, not all government regulations have been so consumer friendly. In 1996, the U.S. Supreme Court in Smiley vs. Citibank lifted restrictions on the amount of late penalty fees a credit card company could charge. Deregulation has also allowed very high interest rates to be charged. In an effort to get consumers to use, award points programs were promoted and in the decades since, using a credit card has become so universal that paying with cash has become passé. Check your wallet, how much cash do you carry around these days?
The death of the credit card is inevitable.
Still don’t agree? Continue reading Part 2 below.
Current Situation.
Want to buy a new car, the dealer down the street will give you a lease. Tired of your old television? Get 10% off by opening a Best Buy credit card. Two hundred dollar steak dinner at Ruths Chris? Charge it. Kindle? iPhone? Christmas? Whip out that plastic card, and justify it with all those great points you’ll get.
While it makes sense to charge it at the time, because you know you’ll pay the charge off that month or in a few months, what happens when suddenly you can’t, and you’re forced to make only the minimum payment? You may find yourself, like many people in this economy, charging necessities like gas, groceries and utilities to your credit cards, further exacerbating your debt load.
In 2008, the average credit card debt in America of households was $10,679 (and likely higher in 2009). If some of these households now can only make minimum monthly payments, they could be looking at 30 years to pay off that balance, and in the end they will have paid about $15,000 in interest alone. Check out Bankrate.com’s calculator and see for yourself.
Note – In the current economy, banks are paying only about 1% in interest for borrowing your money, but charging as much as 29% when you borrow their money.
The death of the credit card is inevitable.
Read the final post of this 3-part series.
The Solution.
Hamlet’s charachter, Polonius warned, “neither a borrower, nor a lender be“. But most of us are one or the other, and it’s this endless willingness of lenders to lend and borrowers to borrow that has shaped this recent economy. It’s not all bad, because it kept the consumer economy moving steadily from the early 1990s until the meltdown of 2007. But what about the future? How sustainable is high interest borrowing and lending? Look around. We are seeing alternative payment companies like PayPal, BillMeLater, Boku, and ILD Teleservices, experience phenomenal growth. The alternative payment method (APM) providers offer consumers a secure way to shop online without increasing their debt load and interest loan with “no credit card required” offers, and no interest. While conversely credit card companies are implementing increasingly hostile practices not only toward consumers but with extra fees for merchants, too.
A national poll by Consumer Reports lends further validation to this argument:
- 45% of consumers say they are paying less with credit than a year ago
- More than one-third (32%) have paid off and closed a card since January 2008, and half of those that canceled did so in direct response to the actions of credit-card issuers, such as cutting limits, hiking rates, or imposing fees.
So, do you still think credit cards will be alive and well for another 60 years? Clearly, I think there are some big changes coming, but I’d like to hear your thoughts, so please share them below.
Oh by the way, here are some other interesting links. If you don’t go to the site, at least read the headlines:
Consumer Reports Poll: Consumers Angry at Credit Card Companies; Citing Unfair Treatment When Closing Accounts
Merchants Start Campaign in Battle Over Credit-Card Fees
Anheuser-Busch Steps Into Credit Card Transaction Fee Reform Battle
http://www.csnews.com/csn/cat_management/malt_bev/article_display.jsp?vnu_content_id=1004030231
“The fees that the credit card companies charge defy logic” – CHS Joins Battle Against Credit Card Fees
http://www.allbusiness.com/retail-trade/food-stores/4486057-1.html
Angry Consumer Slices and Dices Credit Cards To Protest Rate Increase
As our economy slowly recovers, there are still many changes to business strategies and decisions to come that will continue to affect the everyday credit card consumer. Many credit card companies continue to change their guidelines and credit score requirements as they prepare for a continuous increase in defaults.
The result for online merchants will be a steady decrease in available consumer credit and thus resulting in a fewer sales. The online merchants who implement alternatives now have a chance to make-up for the loss in credit card purchases by introducing ‘bill me later’ type alternative payments, like Bill to Phone also known as LEC Billing.
From a processing and billing standpoint, Bill to Phone operates similarly to a credit card. The consumer makes a purchase, and the merchant transmits consumer and transaction data in real time via a secured network connection to iValidate (ILD Teleservices’ validation platform). The buyer information and account is verified by ILD through the authorization request submitted by the merchant.
Alternative payment options allow a much larger consumer base to still take the advantage of buying items online, and instead of entering credit card information, the buyer inputs their telephone number to authorize payment via their phone bill.
Would it help you if were trying to sign up for an online service and you didn’t have to pull out your wallet, find the right card, try to read the tiny digits and instead you simply just provided your phone number and add the charge to your phone bill? There are lots of people who have wanted to make purchases online but couldn’t because either the merchant only accepted specific credit cards, or the buyer just didn’t have a credit card. I know I’d rather save my credit card (and all that ugly interest) for bigger ticket items and put my smaller charges, like move downloads, music downloads and even games on my phone bill.
If you are interested in reading more about the impending changes in the credit industry, they are covered in the following articles.
Citi Dumps Credit Card Customers at the Pump – http://www.ecommercetimes.com/rsstory/68452.html
BofA Won’t Hit Customers With Rate-Hike Squeeze Play – http://www.ecommercetimes.com/rsstory/68318.html
Last Minute Credit Card Tricks – http://www.nytimes.com/2009/10/17/opinion/17sat3.html?_r=1&emc=tnt&tntemail1=y
Zeus Research Teams with STi Prepaid to Launch Innovative Payment Platform for Virual Goods – http://www.prweb.com/releases/2010/02/prweb3575734.htm
Have you ever had to deliver ‘not so good’ news and you were hesitant because of the potential reaction? Oh, I think we’ve all been there and at one point or another thought, “Hey, don’t kill the messenger.” Right?
For one reason or another, like many people you may have decided not to bother because it wasn’t worth the hassle. Well, the problem with not taking action is that issues remain unresolved or the people who need to know remain in the dark. Problems don’t find solutions on their own. So, at most companies, that’s where customer service comes in. Customer service at any company is about resolving issues, finding solutions, making things better. If you make people aware of issues, provide constructive feedback, escalate or inquire about a problem, you are actually giving a company the chance to improve, to grow, to learn and most importantly to serve you, the customer. If you need help, have an issue with a product or just a question…speak up!
At ILD, we want to hear from merchants, consumers, businesses and the like, so we offer a variety of Customer Service options to provide feedback, get help and resolve any questions. There’s a Toll Free number (800-637-4009), email (askild@ildmail.com), and for the ”do-it-yourself” kind of person, there’s a pretty cool Self-Help Site (http://ildteleservices.com/resolution-center.html).
We’ve recently received some comments from customers who spoke up and got the help they were looking for. These two are from consumers billed by merchants using ILD’s Bill to Phone service who elected to use our Self Help Site to get answers:
“Thank you for your prompt action regarding this matter. I realize that you provide a valuable service to smaller vendors and merchants. I further realize that you are often placed in the middle of situation like this am please that you stand firmly behind what you post on you website. I also plan on mentioning your quick response to the Illinois Consumer Fraud people because I believe passing along a positive report is more important that a negative one.”
“I appreciate a fast and easy way to dispute charges via the net rather than waiting forever to speak to a rep on the phone. I hope the credit process is just as fast and free of complications. Thanks for providing an efficient and easy process through your website.”
Thanks so much for taking the time to share that feedback, and please keep it coming. At ILD, we spent a lot of time and resource developing what is actually the first of its kind online self help center, so it’s great to see that people like it. Again, please keep your feedback coming.
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