| November 30, 2011

Consumers will shift to credit this holiday season

With the holiday shopping season now in full swing, many consumers are thinking more about the ways in which they will finance their gift purchases and other expenses, and it seems that many will turn toward a payment strategy most abandoned during the recession, particularly when shopping online.

The amount of money spent on credit cards when shopping online this holiday season is expected to increase significantly as consumers once again begin feeling more comfortable with their finances, according to the latest Online Retail Payments Forecast from Javelin Strategy and Research. This change will likely come at the expense of debit card purchases.

In all it’s expected that e-commerce purchases will likely climb 16 percent or so to $309 billion in 2011, as consumers return to using these accounts to make purchases, the report said. This can be particularly true during purchasing periods in which gift buying is more expected and incentivized by businesses, such as the recent Cyber Monday, when consumers are so anxious for deals they will tend to buy more things than they could afford using debit alone. Consumers tend to spend significantly more on a single transaction online when using credit ($82.10) versus debit ($58.29).

“After several years of declining use, credit cards are poised for resurgence,” said Beth Robertson, director of payments research at Javelin. “Despite the nation’s very rocky economic recovery, consumers appear to have halted their belt-tightening and bank incentives to use credit cards rather than debit are gaining appeal.”

In addition, credit card use is expected to rise significantly over the next five years as well, especially as banks work to find ways of circumventing debit card swipe fee limits put in place by the federal government, the report said. In all, online credit card use should rise 63 percent by 2016, while debit card use will likely increase just 2 percent.

Consumers may also turn to alternative payment methods when online shopping, such as through services like PayPal, the report said.

Experts say that credit card use always ticks upwards during the holiday season, but that this trend also has a tendency to lead to more delinquency in the last few months of the year. For this reason, it can be a good idea to figure out a workable holiday budget and stick to it as closely as possible to avoid excess credit card debt.

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