Shoppers avoid paying with credit cards
NEW YORK (AP) — Shoppers are doing all they can to keep their credit cards in their wallets this holiday season.
They’re paying with cash, direct debits from bank accounts, taking advantage of free financing and even cashing in frequent- flier miles.
Desires to stick to a budget and to avoid interest rates that have risen sharply have helped drive a marked shift away from credit cards. Banks have also reduced the amount of credit they’re making available, even to low-risk clients.
“Consumers are looking for discipline in their spending levels that they can achieve from using cash,” said Bryan Eshelman, managing director in the retail practice of consultant AlixPartners, whose recent survey of shoppers revealed their top concern was eliminating personal debt.
Often, the switch to cash or debit cards means lower costs for stores, though merchants miss out on getting data on their customers’ shopping habits from credit-card transactions.
Layaway and other payment methods increase costs, but they can be offset by new opportunities to grab sales from customers who would otherwise not be able to buy.
Bill Hampel, chief economist at the Credit Union National Association, describes the consumer switch as “seminal.”
“People are trying a lot of new behavior in how they’re spending and how they are paying for it in response to a very scary economy,” he added.
Some new habits, particularly using more cash, will likely linger, with unemployment expected to remain high for several years and credit lines less generous.
Among the ways payment methods are shifting:
UCASH AND ITS COUSINS: Credit cards accounted for 60 percent of transactions at malls operated by Taubman Centers so far this holiday season, down from 70 percent last year, according to an internal survey.
Earlier this year, U.S. debit payment volume exceeded that of credit for the first time, Visa Inc. reported.
PayPal, an online-payment service owned by eBay Inc. that lets shoppers pay directly from their bank accounts in addition to traditional credit, saw its active accounts surge 20 percent in its latest quarter compared with a year ago.
A report from the Federal Reserve issued Dec. 7 showed how Americans borrowed less for a record ninth-straight month in October.
UALTERNATIVE PAYMENTS: Stores have responded by promoting alternative ways to pay and offers that defer payment for several months.
Sears and Kmart are now offering store-card holders who spend just $99 or more a chance to borrow at no cost for six months. A year ago, shoppers had to spend at least $199.
Others are prominently touting Bill Me Later, which offers free financing, usually for 90 days. Gourmet food purveyor Harry & David put the Bill Me Later logo on the front of its holiday catalog. If the purchase is not paid off on time, customers get charged 19.99 percent interest that accrues over that time.
Layaway, which lets shoppers pay over time interest-free while the store holds onto the item, also has made a comeback. This payment method had its roots in the Great Depression but became pass in the past two decades with the rise of credit cards.
Shoe seller Foot Locker Inc. has big signs promoting free layaway on storefront windows.
Toys R Us, whose customers hadn’t requested layaway in the past, has seen interest spike and has come around to a different way of thinking. It’s paying off.
The nation’s largest toystore chain unveiled layaway this fall for big items such as bikes and video-game consoles. It says customers were largely parents who wanted to be able to pay over time and those who were looking for a place to store their gifts.
UGETTING CREATIVE: Customers such as Loretta Prencipe, a freelance marketing professional, are getting creative. In Christmas seasons past, the Alexandria., Va., resident and her husband had charged hundreds of dollars on two credit cards. This year, she used cash for most purchases, while trading in 13,000 frequent-flyer miles from United Airlines to buy a $100 gift card from a restaurant — she plans also to use the miles to buy several $25 gift cards from Barnes & Noble.