According to Visa Inc’s (NYSE:V) latest data, credit card use in the US fell in May, while debit card use rose 12% in the same month indicating consumers’ preference for debit cards. Visa’s top executives think that consumers now prefer to spend their own money instead of other people’s money given the uncertainty posed by the COVID-19 pandemic.
The data aligns with recent trends in the UK where the Bank of England reported that consumer debt repayments hit a new high of £7.4bn in May, of which £5 billion was credit card repayments. There was also a significant drop in new mortgage approvals as consumers opted not to take new mortgages during the lockdown period occasioned by the coronavirus pandemic.
Visa says that the same trend occurred during the 2008 financial crisis as consumers also shifted their spending to debit cards amid the uncertain economic conditions. The firm claims that consumers could shift up to $100 billion of their spending to debit cards as the COVID-19 pandemic plays out in the US.
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The payments company did not disclose data pertaining to the UK, but it is clear that the same trend shall be replicated by British consumer given the many similarities with the US.
It is now clear that consumers are tightening their belts in terms of spending and this will reverberate across the economy over the next few months. Some companies will emerge as big winners during these challenging times, while others will see a significant drop in earnings, which will be evident in Q2 earnings.
