Feds Raise Rates — Will Consumers Move to Debit?

In the world of revolving credit and saying ‘charge it,” the big news this week is that the Federal Reserve has gone ahead and hiked interest rates. “The increase,” the Washington Post says, “was unanimous and modest, raising the Fed’s key interest rate by a quarter point, from a range of 0.25 to 0.5 percent to a range of 0.5 to 0.75 percent. It reflects Fed officials’ confidence in the strengthen of the U.S. economy and what officials see as budding signs of higher inflation.”

As an analysis in Salon notes, “the Federal Reserve’s rate adjustments can cost consumers real money, especially those who carry credit card debt and other types of variable interest rate loans, including many private student loans.”

Looking down the road, the article says that  “most people think that we’re going to have multiple rate hikes from the Fed in the next year, and if those predictions are correct it’s going to have an impact on folks who have credit card debt…If you have a bunch of credit card debt, you shouldn’t need a whole lot of incentive to pay that bill down. But if you do, the chance of the Federal Reserve increasing rates several times in the next couple of years is as good a motivator as anything.”

But even customers who may become warier about running up debt, will still want the convenience of charge cards, electronic payments, and more.

This means, in other words, that credit will get more expensive, including for your customers. Will this discourage them from using cards, or making payments? It may become more incumbent on merchants to make sure that debit-style payments — coming directly from existing accounts, without adding to revolving debt — become more safe and convenient for customers, in the months ahead.

CNBC reports that one large demographic is already steering away from credit cards — millennials: “When you look at millennial shoppers, the vast majority of them use debit cards,” Privacy.com co-founder and CEO Bo Jiang said. Earlier this year, a Bankrate.com report found that nearly two-thirds of younger millennials don’t even have a credit card.”

Among the options they pursue, in addition to debit (which can put personal bank information at risk in the case of a hack), are mobile pay options with their phone.

The aforementioned, and recently launched, Privacy.com is also offering consumers the abilithy to “set up virtual cards that can be used for a single purchase or recurring charges at a specific merchant. Funds are drawn from a linked, existing bank account,” thus making the information untraceable.

Regardless of what they choose, your customers will want their checkouts and transactions to be smooth, convenient — and secure. If you need any “new year touchups,” reviews, or upgrades in any of these areas, contact AVPS. We’re not “taking a hike” — we’re here when you need us!

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