Need to Lose a Few Pounds? Try Using a Debit Card
Credit card use is up, and that's great news for industry heavies Visa and MasterCard , both of which have been on a tear over the past few month. To make things even sweeter, delinquencies have dropped, too, and now stand at a level not seen since 1990.
For consumers, however, the jump in swiping activity is having a deleterious effect -- and not on their financial health. According to The Street, research has found that using a credit card can lead to weight gain, ostensibly because purchasers are more apt to buy junk food or pricey gourmet items. The same effect was not found in consumers using a debit card -- or cash -- which tend to limit overspending by removing the "buy now, pay later" factor.
It doesn't look like Visa and MasterCard need to worry, though. Not only is consumer card-swiping increasing as the public's perception of the economy improves, but both companies also provide debit card services, as well.
A terrific year
Both card companies have seen their fortunes rise over the past year, and they've been garnering attention for their impressive gains, which have pushed both toward their 52-week highs. Analysts note that these companies are especially well-positioned to take advantage of an improving economy, as increased consumer confidence leads to more credit card purchases.
In addition to domestic markets, both companies have been focusing on emerging economies, where historically cash transactions are beginning to segue into credit and debit card purchases. In the first quarter of 2013, MasterCard reported an increase in global payment volume of 11%, and Visa notched gains of 7%.
Banks love plastic, too
Big banks make a nifty profit from the credit card industry, and both Wells Fargo and JPMorgan Chase made note of this in their recent earnings reports. Wells reported that its revenue growth was partially aided by double-digit revenue growth in its credit card department, and JPMorgan also showed growth of 10% year over year in its own credit card sales division.
Banks are especially fond of interchange fees, tasty little nuggets that are created each time a consumer swipes his credit card. Last year, the battle between retailers and card issuers over swipe fees resulted in a settlement, one from which many retail stores, led by Target and Walmart have since opted out.
These swipe fees can add up to around $40 billion each year for banks, which is why they are getting involved in a state-by-state push to enact laws to prevent retailers from charging consumers extra when they make a credit card purchase. Both banks and card issuers are concerned that such a fee would reduce the utilization of credit cards, thus cutting into profits. For its part, Visa has sued Walmart to force it to accept the original $7.25 billion settlement.
Dispute hasn't dinged profits
Despite all the hullaballoo over interchange fees, Visa and MasterCard have had a brilliant year. As the economy -- and consumer confidence -- continues to improve, these two companies will reap the rewards.
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The article Need to Lose a Few Pounds? Try Using a Debit Card originally appeared on Fool.com.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends MasterCard, Visa, and Wells Fargo. The Motley Fool owns shares of JPMorgan Chase, MasterCard, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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