UPDATE: Grading Our Predictions for 2013 – At CardHub, we believe that it is very important to hold financial professionals, institutions, and regulators accountable for their actions and to safeguard the interests of consumers. As such, it only makes sense that we hold ourselves accountable as well. So, if you’re wondering how our 2013 Predictions turned out, you can check out the grade we gave each one below.
The “fiscal cliff” will have minimal lasting impact on consumers: There will undoubtedly be a lot of hysteria, cable news discussion, and political posturing related to the “fiscal cliff,” but we can expect either an eleventh-hour deal to be struck or an agreement to be reached soon thereafter, retroactively preventing catastrophe. No one wants to see what’s at the bottom of that cliff, after all, so even if Washington can’t come up with a lasting bipartisan solution, disaster will at least be delayed. As a result, initial market fluctuation borne from uncertainty will make way to normalcy and the economic recovery will continue unencumbered.
Rationale: The fiscal cliff fiasco now seems like a distant memory, as it turned into nothing more than yet another man-made economic crisis averted at the last minute. Nevertheless, we only gave our prediction an “A-” because while the fiscal cliff itself did not have a lasting impact on consumers, the underlying political issues that led us to the precipice ultimately spawned the government shutdown of 2013 and have yet to be resolved.
Mobile wallet technology won’t catch on: The rumblings related to mobile wallet technology being the future of personal finance have indeed grown louder over the years, but like a construction project, additional delays are inevitable. There are a number of reasons for this. First of all, the requisite infrastructure is not yet in place. Not only will retailers likely have to invest in new point-of-sale terminals, but more smartphones capable of supporting mobile payment technology are also needed, and it seems that the most exciting features are always delayed until the release of the next model. Part of the problem is the fact that smart phone providers have yet to effectively safeguard their devices against cybercriminals, according to the 2012 Georgia Tech Cyber Security Summit’s Emerging Cyber Threats Report.
Secondly, the mobile wallet market is still far too fragmented. Just to mention a few, we have the Google Wallet, “V.me” from Visa, “Isis” from the big cell phone carriers, and the MCX program that has the backing of major retailers like CVS, 7-Eleven, Lowe’s, Shell and Darden Restaurants. It’s hard for any one manifestation of mobile payment technology to gain traction when there are so many different options competing for business. Finally, it’s frustrating enough to have your phone run out of battery without that also leaving you moneyless. While you may disagree with any of these individual factors preventing the widespread adoption of mobile payment technology, when you consider them together it’s clear that 2013 won’t become infamous among wallet manufacturers.
Rationale: Do you or any of your friends use a mobile wallet? The answer is likely to be “no,” as mobile wallet providers have yet to take their products to market due to security concerns, smartphone compatibility issues, and infrastructure requirements. That is why we gave this particular prediction an “A+” grade.
Overall credit availability will increase: As we all know, available credit withered during the Great Recession but has since bounced back. Consumers are expected to rack up $43.5 billion in credit card debt during 2012, nearly 483% more than in 2010, and that would not be possible if credit card issuers weren’t being more liberal with their underwriting. We can expect this trend to not only continue but build momentum in 2013, as the increasingly healthy portfolios of credit card companies, mortgage brokers, and other lenders will translate into more relaxed underwriting standards and more lines of credit being extended to more consumers. This is especially true given that the coming months will see a marked decline in unemployment. While joblessness is currently hovering around 8%, the Federal Reserve Bank of New York predicts that it could fall as low as 6% by mid-2013. The more people there are with steady income sources, the more qualified credit candidates there will be.
Rationale: Credit was indeed easier to come by in 2013, as average credit scores rose, the economy continued its slow recovery, and more consumers had the financial wherewithal to make monthly bill payments. The 2013 credit card market was typified by impressive sign-up perks, lucrative ongoing rewards, and even a number of no-annual-fee secured card offers. As such, we gave this prediction an “A.”
Credit card companies will continue offering lucrative sign-up offers: In 2011, we saw initial rewards bonuses skyrocket into the hundreds up dollars and 0% introductory rates last as long as 24 months. The trend continued in 2012 (though the length of 0% terms declined slightly), and there is no reason to expect that the same won’t happen in 2013 as well. The reason: Even though credit availability will increase, the Great Recession taught banks how important it is to have a low-risk customer base, and extra points, miles or cash back as well as 0% intro rates are a useful tool for garnering the business of consumers with the highest credit scores. The average initial rewards bonus will score you around $60 cash back or 9,500 points/miles, but you can get up to $400 cash back by opening the right card and meeting a certain initial spending requirement.
Rationale: Qualified consumers can still get 0% on new purchases for up to 18 months, a free balance transfer deal with no interest for 15 months, and initial rewards bonuses worth $400 or more. In other words, lucrative sign-up offers are still thriving and this was an “A+” prediction.
Secured credit cards will continue to become more popular: The CARD Act of 2009 capped first-year credit card fees at 25% of an account’s spending limit. Since such fees were the only way credit card companies could properly offset the risk posed by unproven consumers, unsecured credit cards for people with bad credit have largely disappeared. Secured credit cards are a safe alternative for all parties involved in that they require a security deposit that represents the cardholder’s credit line, protects issuers from losses, and makes high fees unnecessary. The fact that secured cards are essentially the only worthwhile show in town for people with bad credit naturally increased their popularity in 2012, but we can expect a bona fide secured card boom in 2013 as people become more familiar with them and issuers realize that the secured card market is a potential goldmine.
What’s more, secured credit cards represent a natural solution to the problem of stay-at-home spouses being unable to independently build credit. This would be especially true if the Consumer Financial Protection Bureau (CFPB) decides to eliminate the redundant income verification requirement for this card segment. There are roughly 16 million stay-at-home spouses in the United States, according to Census data, and that’s an awful lot of potential secured card users.
Rationale: Continued economic recovery and declining unemployment naturally foster increased interest in secured credit cards, as they are the best option available to folks looking to rebuild their personal finances. We also witnessed more credit card companies enter the secured card space in 2013. However, secured card applicants are facing unnaturally high costs these days, according to a recent CardHub study which found that secured cards can cost more than $100 per year, despite the lack of risk they pose to issuers. For that reason, we only gave this prediction an “A-” grade.
There will be a prepaid card boom: The writing has been on the wall for a while now. Prepaid cards were the fastest growing form of electronic payment from 2006 to 2009, according to the Federal Reserve, and data from the Mercator Advisory Group shows that consumers have loaded 33-50% more money onto them each year since. There are now 7 million prepaid cards in circulation – double that in 2009 – and we can expect this number to explode in the near future.
The Durbin Amendment made sure of this by capping the fees banks are allowed to charge merchants for debit card transactions, robbing them of $9.4 billion in annual revenue and prompting a search for more profitable alternatives. Prepaid cards are an obvious choice since they offer basically all of the same features and functionality as the combination of a checking account and debit card, aside from an actual physical checkbook. As a result, we’ve seen an infusion of funding and big-bank activity in the prepaid card space, highlighted by endorsement deals for the likes of Magic Johnson and Suze Orman as well as very attractive new offers from Chase and American Express. Not only will these household names attract their own followings, but if the initial forays prove successful (and we expect that they will), it’s only a matter of time before the rest of the banking industry’s big boys take the plunge. Ultimately, the Mercator Advisory Group’s projection that consumers will load $117 billion onto prepaid cards in 2013 might therefore prove to be low.
Rationale: 2013 did indeed mark the continuation of a trend of increased prepaid card use and growing consumer familiarity with this still-new type of financial product. But did this constitute a boom, or will bigger gains be seen in 2014? Only time and more data will tell, so we gave ourselves an “A-” for this prediction as well.
Transparency will increase throughout financial services: Transparency has long been a hot-button issue in personal finance, largely due to the fact that certain banks engaged in bait-and-switch pricing, assessed excessive fees, unfairly allocated payments, etc., prior to the CARD Act’s implementation in 2010. However, that law primarily addressed issues related to the credit card industry. Now, as the CFPB becomes more mature, it is expanding its focus to other segments of the personal finance world. It recently began monitoring credit bureaus as well as debt collectors, and we expect prepaid cards and checking accounts to be next. The ultimate effect will be an altogether more consumer-friendly personal finance landscape in 2013, marked by fewer hidden pitfalls and predatory practices.
Rationale: If anything, personal finance transparency improved in 2013, as the Consumer Financial Protection Bureau cracked down on unscrupulous practices in the mortgage, payday loan, and debt collection industries and worked to improve financial literacy, among other initiatives. Still, the changes were neither widespread nor significant as we would have liked. Transparency is still a major issue as it relates to checking accounts, prepaid cards, retail financing plans, and even credit cards. We assigned this prediction a “B” grade as a result.
Check cashing stores will continue to trend toward extinction: For a long time a check cashing store was one of the few places that unbanked consumers could go to collect their payday. That was unfortunate because such businesses tend to charge excessive fees, thereby robbing a traditionally low-income consumer segment of limited spending power. The seeds of the industry’s downfall have perhaps been sewn, however, given the availability of low-cost prepaid cards that enable consumers to load checks directly into their accounts using certain ATMs or mobile banking applications. Not only do we expect such cards to become more prevalent as the prepaid card market grows, but costs should also fall as more companies enter the prepaid card space and thereby increase competition. More and more unbanked consumers will therefore become aware of this obviously superior alternative to check cashing stores, and we can expect the industry to continue bleeding customers in 2013, resulting in a number of store closings.
Rationale: While it is difficult to determine the year-over-year change in the number of operational check cashing stores, anecdotal evidence indicates that widespread closures did not occur in 2014. In fact, news coverage would seem to suggest an uptick in the number of such businesses in low-income neighborhoods. As a result, we gave this prediction a “C,” pending additional information.
(Bonus) The Prediction We Wish We Could Make: In a perfect world, the first prediction on our list would be that “Insurance will be regulated at the federal level beginning in 2013.” Why would that be a positive development? Well, it would lower overhead costs and in turn the barriers to entry for small companies, thereby creating more competition and lowering costs for consumers. The insurance industry would also become more efficient by necessity, since large companies would no longer be essentially guaranteed of a certain amount of business. Finally, an industry regulated at the national level would obviously attract more attention from both the media and consumer advocacy groups, which would reduce predatory practices throughout the space.
Why won’t it happen? The answer is simple: Lobbyists. The insurance lobby is far too strong to allow such a fundamental change to occur because there is too much money at stake for the companies currently dominating the industry. There’s also a significant divide among those who think federal regulation would be beneficial and those opposed to bigger government who feel that states are better positioned to oversee insurance, among other matters. In other words, the support necessary to overcome the financial clout of the insurance companies simply won’t be there in 2013.
Rationale: While federal insurance regulation would appear to offer a number of attractive benefits, the combination of political partisanship and deep-pocketed lobbyists has prevented a full-scale push to such a system. CardHub’s prediction was therefore correct in both regards and warrants a grade of “A.”