Banks are cutting back consumers' credit card limits, a trend likely to accelerate in the coming months. How will online retailers close sales if customers can't pay with plastic?

Feb 3, 2009

Banks are cutting back consumers' credit card limits, a trend likely to accelerate in the coming months. How will online retailers close sales if customers can't pay with plastic?


Internet Retailer-Many banks cut credit card limits in the fall, and deeper cuts are coming, some experts believe. While 55% of web purchases are made with credit cards today, according to research and consulting firm Javelin Strategy & Research, that could change as banks cut credit lines at the same time as many consumers turn thrifty.

"Consumers are definitely moving more toward a pay with what I have model, both because of fear and because they don't have the credit limits they used to have or the ability to pay down credit card debt,"says Javelin analyst Bruce Cundiff.

For online retailers that poses the question: How can they close sales if consumers can't, or prefer not to, use their credit cards? Some online retailers say the answer is to offer private label credit cards and other payment methods beyond credit cards.

Banks slash credit

Banks responded to last fall's financial crisis by quickly slashing credit card lending. In an October survey by the Federal Reserve Board, nearly 60% of loan officers said they had already tightened lending standards on credit card loans. One bank in five had cut credit card limits on their most creditworthy customers and 60% on subprime customers.

That could be just the beginning. Investment bank Oppenheimer & Co. predicts issuers will reduce credit card lines by $2.1 trillion in the next 18 months, wiping out nearly 45% of the spending power U.S. consumers now have on credit cards. Oppenheimer analysts say the banks are moving to reduce exposure to risk and because of new rules adopted by the Fed in December that limit some interest charges on card balances. Read Full Aritcle