Two of the world’s biggest credit card issuers, Visa and Mastercard, are warning about an impending credit card crisis, and consumers should be on high alert because fee hikes will start being introduced over the next 30 days. Both payment technology companies said they also intend to raise credit card fees paid by merchants every time they accept credit card purchases from their customers. A report published by the Wall Street Journal revealed that the fee increase will occur in October, right ahead of the hottest shopping season of the year. The timing of Visa and Mastercard’s decision is certainly going to impact the buying plans of many U.S. households during the holidays.
Experts with the Journal predict that a significant portion of the credit card fee hikes faced by retailers will likely be passed on to consumers in the form of higher prices. In 2022, U.S. retailers paid nearly $94 billion to Visa and Mastercard in credit card fees. This figure almost tripled over the past decade, up from $33 billion in 2012. All of this comes at a very bad time for Americans, who have seen the cost of living in America shoot up in the past three years. In fact, in August, the number of Americans rolling their credit card debt from month to month became higher than the portion who pay their bill in full for the first time since this data started being tracked, according to a new survey by J.D. Power.
The global data and analytics firm found that 51% of credit card holders in the United States can’t pay off their entire balance each month. Right now, shoppers are using their cards for a lot of everyday purchases. Grocery shopping is the top purchase type that consumers say they are making with their credit cards. This is happening at a period when credit card interest rates are at 40-year highs. In the past few years, Americans have racked up a record-high amount of credit card debt, according to data released by the Federal Reserve.
“We’ve seen a huge increase in credit-card delinquencies,” said Balbinder Singh Gill, assistant professor of finance at the Stevens Institute of Technology’s School of Business in Hoboken, N.J. The professor says that with a 24% annual percentage rate on credit cards, becoming delinquent on credit card debt could push millions of low-income families into bankruptcy. “It’s a very dangerous situation currently, especially for low-wage workers,” Gill stressed.
Another red flag is that shoppers are turning to buy now, pay later services to be able to make ends meet. Usage surged 40% in the first two quarters of 2023, according to data from Adobe Analytics. In addition to soaring interest rates and student loan repayments, consumers are likely to rack up even more debt due to higher energy and electricity bills in the fall and winter as the cold weather kicks in and the cost of heating homes ratchets up.
At the end of the day, the credit card crisis is symptomatic of the tough decisions that struggling American households are having to make in 2023. People are having to choose between paying their credit card bills, their rent or buying groceries. And the fee hikes that will come into effect less than four weeks from now are going to financially hurt many families out there.