Check Your Wallet: Credit Card Use is Up

Are you using your credit cards more often? Many people rely on plastic money as a way to deal with tough economic times, especially the current situation with its unnerving inflation, sudden job losses, and fearsome loan problems. As most credit card companies offer generous credit lines and low minimum payments, the temptation becomes unresistable not only to buy just what you need but also to indulge in some relatively frivolous purchases or to choose more expensive brands instead of bargains. As a result, some card issuers are enjoying increased profits from this situation, profits from interest rates on unpaid balances. But others find themselves caught up in the credit crunch related to the subprime mortgage crisis.

Here are some facts about the top four credit card companies in the U.S., including Visa, MasterCard, American Express, and Discover. To differentiate, Visa and MasterCard process credit card transaction for issuing banks, while American Express and Discover extend credit by issuing the cards themselves and also handle all processing. The processors are the one enjoying higher profits, while the issuers must face fall-out from bad loans and related bankruptcies.

San Francisco-based Visa Inc. is a multinational company which recently celebrated one of the largest IPO offerings in history. Its share price has gone up even as most stocks have been heading down due to the current bear market, influenced by news of recession and sky-high gas prices.

Purchase, NY-based MasterCard Worldwide recently launched an Islamic debit card, reportedly Shari'ah compliant, which bears the MasterCard logo and works in ATM's worldwide. Founded in 1966, this well-known competitor to Visa similarly offers debit cards as well as credit cards. Debit cards withdraw funds directly from users' bank accounts instead of relying on monthly accumulated bills.

New York City's American Express is known for issuing traveler's checks as well as credit cards. Rumors that the company may start lowering credit lines to many customers are growing as financial advisers advocate keeping default rates low. The company may also be planning staff reductions to cut costs.

Riverwoods, IL-headquartered DiscoverCard, developed initially by Sears Roebuck in 1986, recently acquired Diners Club in an effort to broaden appeal and to challenge better known rivals. Another diversification move is Discover's plan to offer auto, life, and homeowner insurance policies to existing customers.

Despite current worries and stock market jitters, use of credit cards, whether it be American Express, Visa, MasterCard, or Discover, is likely to expand rather than contract. Convenience is the chief reason. Interestingly, paper check volume has decreased substantially in recent years as people have become more accustomed to electronic payments, to debit card transactions, and to treating credit cards as a way to organize spending and consolidate bills.

Perhaps those handy little 2-inch by 3.25-inch plastic cards are not actual gold mines or mini-banks but they are powerful financial tools just the same. When all goes well, the cards work smoothly and efficiently. Yet there are some pitfalls to easy credit, including mounting debt, variable interest rates, and little allowance for emergency or other catastrophe. Still, although cash in the wallet is good, magic plastic cards are unbeatable for quick, easy purchasing of items cheap or expensive, necessary or frivolous, and routine or unexpected.

"An Unsettled Time for the Credit Card Industry," Voice of America News
"American Express shares fall on 3Q estimates," Forbes/Associated Press
Patricia Sellers, "Behind MasterCard's soaring stock," Fortune Postcards (blog)
Rob Carlmark, "Some fixed rate credit card changes may soon make debt harder to pay off," KSBY Action News
"MasterCard launches Islamic debit card," Global Banking News, August 6, 2008