The Credit Card can be easily defined as the act of borrowing money in the form of commodities and services and paying it back later. Usually, the time limit for payback is a monthly basis. Everything that is borrowed is then entered in a file. The ability of a credit card holder all but depends on their credit file status which is built over time. Patrick (2012) provides an analyst argument that cardholders are awarded credits according to their ratings and credit repayment ability. That argument is in line with the recommended ways of improving a credit file through repayment of credit cards, mortgages, and loans in time. Every payment and amount paid are usually entered monthly into what will be used to determine the credit card holder ratings.
Since the inception of the credit card, its market share has continued to grow over time. This trend has been caused by the global rush to adopt a comprehensive cashless payment means. Retail shops and other businesses have integrated the credit card usage as a way of aligning to future trends. A cashless payment system is said to provide more convenience and security for the users. As a result, the credit card industry has continued to register a growing number of users. It is estimated that by the year 2014, the United States alone had recorded an approximate amount of $4 trillion. Susanne (2012) takes a historical materialistic approach in attempts to establish the significant growth that has been registered in the United States market. From his findings, he reports that credit card usage in the United States has grown significantly. Susanne (2012) predicted that the credit card industry possessed an aspect of neoliberal capitalism. The expansion of the debt subject, especially to workers, would lead to capitalism and exploitation as they could be in a position to pay back the debt.
Analysts argue that the credit card will replace cash one day in the business world. The use of credit cards is pretty simple when it comes to saving money. Because of that, the credit card is seen to provide convenience over the use of cash. When it comes to security, the credit cards presents a safer medium of exchange as compared to cash or any other payment method. Considering the fact that people mind about their security, the use of the credit cards is deemed to replace the use of cash shortly. The credit card presents users with the chance to have a detailed list of everything that they have spent over the month. In a world where consumers are getting more and more concerned about their spending habits, the use of credit cards holds an advantage over cash. Because of these facts, many believe that the credit card will replace cash in the society in the near future.
Credit cards present the holders with the ability to spend as much as they want within their limits. However, some people borrow extensively on their credit cards. Meier (2010), carried out a study about the relationship between the present-biased time choice and credit card borrowing habit. The findings indicate that individuals are more likely to have credit card debts. The findings from this study relate to the ideal global conditions in which credit card holders do not pay off all their monthly debts. Due to transaction traceability, the use of credit cards makes it possible to connect an individuals purchases and their person. For persons who do not aim to be traced when making certain purchases, the use of the credit cards is not preferred.
Despite the fact that use of credit cards is convenient, it has concerns that also relate to it. The Bitcoin and other cashless means of payments which are still new in the market may be convenient. However, they possess an aspect of unreliability. Unreliability is brought about by the electronic systems which are used to run the cashless platforms like the credit card. If blips occur in the electronic system, global commerce is brought to an abrupt halt. Changsu (2009) provides an empirical study of how customers perceive and trust e-payments. In his findings, he notes that the trust that the clients have on the system will determine the success of the business. It is commonly believed that a good security improves trust. For this reason, if an electronic system on which the credit card runs fail, then the business is most likely to be hit hard due to destroyed trust. From here, we can delve further to establish the fears that the use of credit cards and other borrowing platforms like American Express have on an economy.
Fears of credit card use in the US economy
The US economy is recessing while the debts are increasing. In the second quarter of 2016, the economy grew far less than it was projected. At that same time, lending overdrafts and credit card have risen to its highest levels over the last decade. Such high lending has prompted the lenders to prompt their concerns that if the trend continues, the loans could end in a bad way provided that the economy continue to recess. Analysts see a common trend in between the 2007 economic recession and what is currently being experienced now. There is fear that the US economy could continue to deteriorate further as a result of the heavy borrowing through credit cards and the other borrowing platforms.
Rey (2017) asserts that countries which record more credit inflows are more prone and sensitive to the global cycles. The global financial cycle is not in any way aligned with a country's macroeconomic conditions. Interestingly, changes in the global cycle are more likely to be translated to the economy of a country which has a huge record of credit inflows. The argument illustrates that if excessive borrowing is allowed, then the economy of the country is left vulnerable to the external forces coming from the global economic cycle. From that, we note that excessive borrowing resulting from credit card borrowing weakens the financial cycle of the country and leaves it vulnerable to recession and inflation.
Online banking and the e-commerce have recorded significant growth in the past years, and it is showing huge promise for the future. Because of this, it has attracted fraudsters who seek to exploit the systems and drain the system through the loopholes they create. Fraud is then one of the fears which are associated with the use of credit cards. The purpose to commit a fraudulent act is to obtain commodities without paying or obtaining unauthorized funds from an account. Credit card users hold this fear that their credit cards are at a risk of getting accessed. Their uncertainties are founded on the fact that credit cards are based on electronic systems, and criminals can bypass these systems. From this point, the criminal will have control over the card and can access valuable data, private information, steal money, or fraudulently use the card to acquire goods and services using the card.
Jon (2008) focuses on real-time fraud detection methods which can be used to curb this vice in using credit cards. To detect fraud cases, a consumers spending pattern is observed and recorded. The method makes use of self-organization information and pattern. The Information and pattern are then deciphered, filtered and analyzed to determine the consumers behavior. If a break from the normal trend is observed, the fraud detection unit is alerted. Security forces have so far devised ways of detection and dealing with fraudulent cases. The above illustration is just but an example of the ways that have been devised to deal with cases of fraud happening in credit card use.
High and excessive personal borrowings is another of the major concerns that users have concerning the use of credit cards. Of course, the key is a responsible use of the credit cards. Card issuers are partly to be blamed for the high borrowings by card holders. Why are issuers allowing indebted customers to continue escalating into further debt? Such is one of the concerns that people have about the use of the credit cards. If users are allowed to continue borrowing more and more, they might reach points where they may not be able to repay the debt. Deanna and Cliff (2009) established that financial knowledge is a major factor concerning credit cards decisions taken by students. However, it is not the case for all card users who end up spending more that they can repay. Consequently, these users are awarded poor credit cards score putting them in disadvantageous financial positions.
The consumer group has continued to record some issues relating to excessive fees. Among the issues raised by consumers is that they are not able to compare rates of different credit card issuers. In consequence, the credit card companies have exploited this loophole to charge excessive fees. Excessive penalties are also charged for people who default on their payments. Neil (2009) demonstrates how the minimum repayments are reached at. From the results, he notes that setting a minimum repayment amount acts as a psychological setback. Consequently, users end up defaulting to remit repayment amounts. The unpaid debts accumulate, and at some point, they are dealt a blow when they are charged high rates due to defaulting the debts. Excessive rates charged by companies is a financial setback to clients who at that point are struggling to repay the debts already accumulated.
According to research, the credit card has grown significantly since its inception. The way we pay and transact business has evolved and as a result, business has improved. The smooth payments that are made through credit cards have had a wider effect including stimulation of economic growth. Despite many concerns that credit card usage brings, there are very many economic benefits which are recorded. To a large extent, these benefits have propelled the credit card industry to the status which it is at now. Analysts argue that the credit card usage could entirely replace the use of cash in the near future. However, this is not foreseeable because technology is yet to come up with ways that will accommodate credit card payment in the same way that cash payment.
References
Bolton, P., Freixas, X., & Shapiro, J. (2012). The credit ratings game. The Journal of Finance, 67(1), 85-111.
Meier, S., & Sprenger, C. (2010). Present-biased preferences and credit card borrowing. American Economic Journal: Applied Economics, 2(1), 193-210.
Kim, C., Tao, W., Shin, N., & Kim, K. S. (2010). An empirical study of customers perceptions of security and trust in e-payment systems. Electronic commerce research and applications, 9(1), 84-95.
Quah, J. T., & Sriganesh, M. (2008). Real-time credit card fraud detection using computational intelligence. Expert systems with applications, 35(4), 1721-1732.
Rey, H. (2015). Dilemma not trilemma: the global financial cycle and monetary policy independence (No. w21162). National Bureau of Economic Research.
Robb, C. A., & Sharpe, D. L. (2009). Effect of personal financial knowledge on college students credit card behavior.
Soederberg, S. (2013). The US debtfare state and the credit card industry: Forging spaces of dispossession. Antipode, 45(2), 493-512.
Stewart, N. (2009). The cost of anchoring on credit-card minimum repayments. Psychological Science, 20(1), 39-41.
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