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Why Cash Is the New Plastic

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  • Why Cash Is the New Plastic

    November 9, 2010

    Consumers are spending again, but gone are the days of swiping and signing for everything from lattes to lawn furniture. Shoppers are reaching for paper money, and as they do, stores and even credit card issuers are increasingly ready to reward them – with more cash.

    Already customers are showing a strong preference for cash. Consumer spending is up 2.2% so far this year, but none of the four major credit-card companies have benefitted from the increase. Visa credit-card transactions were down 1.2% in the first half of the year, compared with the same period in 2009, according to the Nilson Report, which tracks payment systems. MasterCards were used for about 10.2% of all card transactions, also down, and the company acknowledges that its growth is coming from debit card use these days. Discover transactions also dipped slightly; only American Express’s business remains steady.

    Instead, consumers appear to be spending money they currently have, paying for purchases with a debit card or actual cash. The dollar amount “charged” with debit cards has grown 15% this year (spending on credit cards was up just 1.9%). And debit-card transaction volume is expected to grow 8% to 12% annually, according to the TowerGroup, which tracks bank cards. “A lot of people are leery of credit cards and don’t want to fall back into debt – that’s why you’re seeing this migration,” says James Brown, emeritus professor at the University of Wisconsin at Milwaukee and former director of the university’s Center for Consumer Affairs.

    Here are three more signs that cash is making a comeback.

    Gift cards are out

    After nine consecutive years of gains, gift cards are on the wane. Sales of gift cards are expected to drop to $86.2 billion, an 11% decline from their peak in 2007, according to CardHub.com. Shoppers want to avoid pitfalls like expiration dates and inactivity fees that can quickly erode a card’s value, says Kwame Kuadey, chief executive of GiftCardRescue.com, which buys and sells gift cards. Even if you use a portion of the gift card, these inactivity fees can kick in if the rest of the card remains unused for at least 12 months. However, the Card Act eliminated other loopholes, including extending expiration dates to at least five years after the gift card is issued.

    Before, expiration dates could kick in at any time and often did within one year.
    Meanwhile, more consumers are selling the gift cards they already possess for around 10% to 20% less than face value to third-party sites like GiftCards.com, CardHub.com, PlasticJungle.com and GiftCardRescue.com.

    Sales at GiftCardRescue.com are up 1,000% through October of this year compared to the same period in 2009, says Kuadey. PlasticJungle.com says sales have more than doubled through the middle of this year. “People would rather use the cash anywhere they like than be restricted to a specific store,” says Dan Horne, professor of marketing who tracks the gift-card industry at Providence College. In turn, consumers who shop at specific stores can buy the cards at a discount; for example, GiftCards.com recently listed a SpaFinder gift card worth $100 for $86 and a $37 Home Depot card for $34.

    Cash discounts are coming

    Within a few months, consumers could save up to 2.5% on most purchases by paying with cash. A clause in the financial reform bill allows merchants to discount items for shoppers who pay with dollars. And the Justice Department settlement last month with MasterCard and Visa allows retailers to discourage the use of rewards credit cards or other credit cards they deem expensive in order to avoid the high fees that card issuers charge when a store customer pays with plastic.

    The result could be a system of price tiers, where retailers offer different prices for each product based on method of payment – with cash the cheapest, says Doug Kantor, counsel to the Merchants Payments Coalition, a coalition of retail trade groups. “They’d love to be able to offer discounts for cash,” and that could soon happen, he says. So, consumers who pay with cash could, say, get a $200 coat for $195. Some might extend those lowest level prices to debit card purchases, he says.

    If you spend, say, $800 in cash on groceries each month — about average for a middle-class family of four, according to the USDA — that 2.5% savings could add up to $240 a year.

    Even credit card companies know you want cash

    To counter this shift to cash, credit-card companies are offering some of their own — up to $100 — to encourage consumers to sign up and make purchases, promotions not seen since 2007, says Odysseas Papadimitriou, CEO of CardHub.com, which tracks credit card offers. To qualify, consumers need a FICO credit score of at least 720. Of course, just like cash for checking account offers, banks expect to make thousands of dollars off these accounts. These cards are mainly offered to consumers who pay in full every month, represent a low risk of default, but who are heavy credit-card users who net credit-card issuers about 1% of the total purchase price each time they swipe their card — fees that merchants pay the card companies, he says.

    To get the $100 sign-up bonus, you’ll have to give up cash, too, at least in the short term. With the Chase Freedom Visa card, consumers have to charge at least $799 in the first three months to get $100, and with the Discover More card, you’ll have to charge at least $500 in the first three months for $100. And even then, most issuers post the money as a credit to your statement.

    http://www.smartmoney.com/spending/b...ng-a-comeback/
    Filed Chapter 7 July 2010
    Attended 341 September 2010
    Discharged November 2010 Closed November 2010

  • #2
    I agree that gift cards are out. Several times we've checked on an old gift card we hadn't used and discovered its worth had dwindled down to $0.
    Filed Chapter 7 July 2010
    Attended 341 September 2010
    Discharged November 2010 Closed November 2010

    Comment


    • #3
      It's great to see Americans reaching for cash or their debit cards instead of credit cards. I'm still kicking myself for all the times I used credit cards to go into debt shopping for stuff that was nothing more then destructive debt like clothes furniture, electronics etc. I went into sams club yesterday and saw this 50 lcd samsung tv that I would like to buy. Even if I had the credit to buy it, the thought wouldn't even enter my head. I will SAVE UP THE MONEY and buy it next year. I won't owe anyone anything, also the price will be cheaper. CASH IS KING, with CREDIT I REGRET IT.

      Comment


      • #4
        I love the feeling of using cash! It is a new experience for me. I am never going back to plastic!
        I felt such a burden lifted when I cut my cards up. I have a long way to go and hoping I can make it through a Chapter 7. Just paid my attorney off!
        10/18/10 Admitted to self I can't continue to live off CC; 11/19/10 Filed Chapter 7, 341 scheduled 1/5/11

        Comment


        • #5
          I have been using debit cards for about the last year and a half. Now for about the last month I have been almost all cash, not even the debit card. To me at least, the debit card is not really good, because I would mentally think it was like a CC, spend it and then not have enough left for bills. It is amazing how much I do NOT spend with just using real cash money! I dont like letting it go for anything, not even food or gas! LOL

          Comment


          • #6
            Originally posted by keepinitreal View Post
            I agree that gift cards are out. Several times we've checked on an old gift card we hadn't used and discovered its worth had dwindled down to $0.
            we JUST attempted to use a gift card the other day...it was only a few months old and they said it was no good...we were on the phone for over 2 hours trying to get the whopping $40 "rebate" we rec'd for as a result of poor customer service from this store...and of course it didn't work.

            we have had more problem that not with those cards....although we use to give them as gifts.

            and since you have to actually pay CASH for those...i can see how it's just simpler to give CASH in the first place.

            we are using a couple of charge cards in attempt to build up our credit and it's driving us crazy! we want to run to the computer and make a payment immediately after the use because we don't want to own anyone ever...yet...one day we would LOVE to buy this house and need the credit score for the mortgage. HATE IT!
            8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

            Comment


            • #7
              I'm pleased to see folks learning not to use CC's. That most likely contributed to ALL of us getting into uncontrollable bk situations.

              Another thing you may not realize. The use of a CC profiles YOU. If I had a month of your records of spending, I could tell you all about your habits and personality traits. Whether you drink a lot, smoke too much, what your interests are, etc.

              The FBI at times uses this tool from MasterCard and Visa as they data collect statistics. They also data collect for companies and sell that info. Example, to test a new add in a particular place, they will look at a sample before the add, then once the add runs look at an extraction of info on what the add has done as far as spending on that item in the add. This has been done for years.

              When the UPC label came out in the late 70's, Winn Dixie a Florida based food chain, sold information that surpassed the value of the food they sold.

              Sears at one time make more in interest on their Sears card than what was purchased by that card. Think about it.

              I'm pleased the CC companies are taking a hit. They sure did one on the Public. 'Hub
              If I knew it all, would I be here?? Hang in there = Retained attorney 8-06, Filed 12-28-07, Discharge 8-13-08, Finally CLOSED 11-3-09, 3-31-10 AP Dismissed, Informed by incompetent lawyer of CLOSED status, October 14, 2010.

              Comment


              • #8
                Originally posted by AngelinaCatHub View Post
                I'm pleased to see folks learning not to use CC's. That most likely contributed to ALL of us getting into uncontrollable bk situations.

                Another thing you may not realize. The use of a CC profiles YOU. If I had a month of your records of spending, I could tell you all about your habits and personality traits. Whether you drink a lot, smoke too much, what your interests are, etc.

                The FBI at times uses this tool from MasterCard and Visa as they data collect statistics. They also data collect for companies and sell that info. Example, to test a new add in a particular place, they will look at a sample before the add, then once the add runs look at an extraction of info on what the add has done as far as spending on that item in the add. This has been done for years.

                When the UPC label came out in the late 70's, Winn Dixie a Florida based food chain, sold information that surpassed the value of the food they sold.

                Sears at one time make more in interest on their Sears card than what was purchased by that card. Think about it.

                I'm pleased the CC companies are taking a hit. They sure did one on the Public. 'Hub
                wow...hub that's so interesting!! never heard about that before. and really i don't even WANT to think about it! LOL!!!

                for us, especially it is difficult to NOW use the cards because we never did before except for medical expenses...NEVER for a luxury item...not even gas. so this is actually a new experience for us.

                we keep a "running" log of all charges and why...we were advised to buy and eat with them, so that we could build back up to buy the house, however, since we never have done this before, we personally are having a very hard time using the card. yesterday, it was funny...both of TRYING so hard NOT TO make a payment!...also we don't eat out nor buy much, so we are hard pressed on finding items to put on the card.

                our plan was to use the card during the "interest" free period and make monthly payments so it looks good. we are having a hard time!! we so prefer our cash or debit cards.
                8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                Comment


                • #9
                  Originally posted by AngelinaCatHub View Post
                  I'm pleased the CC companies are taking a hit.
                  They took a $137K hit from me in Chapter 7.

                  Comment


                  • #10
                    I just use my debit card and cash to make daily purchases and stay away from credit card, except when paying for gas with the only credit card I have left. This one only has $250 limit so not too much to worry.
                    Filed chapter 7 Jul 13, 2010 341 hearing Aug 12, 2010 Trustee's report of no distribution Aug 20, 2010 Discharged Oct 13, 2010 Closed Oct 28, 2010.

                    Comment


                    • #11
                      Originally posted by wnguyen View Post
                      I just use my debit card and cash to make daily purchases and stay away from credit card, except when paying for gas with the only credit card I have left. This one only has $250 limit so not too much to worry.
                      i hear you wn...we just someday would like to buy this house...it's the ONLY reason we are using it again.

                      plus...it really wasn't over use of our cc's or money mismangament that caused our bk...it was more the fact we both lost our jobs and one of us got really ill. although we did have had cc bills over 200k just from medical expenses since actually it was two years in a roll we capped out on our medical insurance...it kills us! down the tubes in a blink...or so it seems.
                      8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                      Comment


                      • #12
                        Tobee

                        We also would like to purchase a house someday, probably 3, 4 years later (that's long ). It's understandable. You just have to do what you have to do. You and I we're just among the millions who lost their jobs. What can we do anyway.
                        Filed chapter 7 Jul 13, 2010 341 hearing Aug 12, 2010 Trustee's report of no distribution Aug 20, 2010 Discharged Oct 13, 2010 Closed Oct 28, 2010.

                        Comment


                        • #13
                          Originally posted by wnguyen View Post
                          Tobee

                          We also would like to purchase a house someday, probably 3, 4 years later (that's long ). It's understandable. You just have to do what you have to do. You and I we're just among the millions who lost their jobs. What can we do anyway.
                          we sure were...and nothing unique at all with everything that's happening today...that's for certain.

                          we can don't a thing other than wait it out and know we aren't alone...we are in great company! ... ALL one million of us....together..
                          8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                          Comment


                          • #14
                            Originally posted by keepinitreal View Post
                            Some might extend those lowest level prices to debit card purchases, he says.
                            If that does happen, it won't stick around. The fee that the merchant is charged for processing credit cards is the same as the fee for processing debit cards being used as a credit card. A customer using a debit card as a credit card is no protection against a chargeback, either.

                            Comment


                            • #15
                              Interesting. Target now offers a debit card, and it's not a bank account, it just pulls from some other bank account that you give them permission to draw from. Not sure I shop there enough to bite for the 5% discount.
                              filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!

                              Comment

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