Payments and the 2010 holiday season
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As we all know, Thanksgiving is not only an important holiday in North America, it is also a start of the retail bonanza in the run up to Christmas. Black Friday and Cyber Monday have become one of the biggest shopping days of the year. And the phenomenon is spreading outside North America - Cyber Monday is also used as a marketing term in the UK, Germany and a number of other European countries. Others might be using a different name (e.g. Play.com in the UK is promoting today as 'Mega Monday'), but the concept is the same. So, is there any difference in how consumers shop and pay for the holiday purchases this year? Well, it seems that three trends stand out in particular, all of them related. The overall levels of spending are likely to be reduced from previous years, and ever more consumers will use Internet and "pay now" or "pay before" payment methods. There seems to be little optimism among the US consumers this year. According to a survey by Citi, many Americans expect to cut back both on the number of people to whom they give gifts and on the cost of those gifts. In addition, 78% plan to avoid traveling to further keep the costs down. As consumers count their dollars and cents, they are attracted by convenience of the Internet, the ability to compare prices and the deals that are only available online. According to American Express, more than 78 percent of consumers say that the Internet will play an important role in their holiday gift shopping. And sometimes, they get additional incentives - for example, the UK consumers have a chance to win a "year’s salary" of £40,000 every week for six weeks in the run up to Christmas by simply shopping online with PayPal. Finally, "pay now" and "pay before" methods are gaining further ground as a result of consumer concerns of getting into debt by using a credit card. GreenDot, a prepaid card provider, says that according to their survey, 69% of shoppers plan to primarily use available funds, such as debit cards, cash, checks, gift cards as well as prepaid cards to pay for holiday gifts this year. Also, while debit cards allow customers to use their available funds, historically they didn't protect the cardholders from unplanned bank fees - according to the same survey, 45% of Americans have been charged unplanned bank fees in the past year, most commonly, overdraft fees (51%), followed by ATM fees (47%), finance charges (32%) and late payments fees (29%). Surely, this picture will be different this year, as Reg E limits the bank's ability to charge unplanned fees, such as overdraft, but prepaid cards are certainly going mainstream - in the 12 months ended September 2010, Green Dot alone issued over 6 million new prepaid card accounts to Americans, who over that time loaded more than $9.5 billion of deposits. Of course, just like pre-election polls, survey results are not always accurate. It will be interesting to see the retail results and whether consumers managed to maintain their proclaimed financial prudence or if the temptations of the holiday season have in the end won them over.