Prepare to say goodbye to swiping your card each time you make a payment. Issuers are just starting to roll out the next generation of credit cards -- and they look noticeably different from the plastic you're carrying around now.
Experts say that 2014 will be the year that the traditional magnetic stripe credit card will start to slowly make its exit in the U.S.
The next credit card you receive in the mail, for example, may feature a metallic chip that you can insert into a card reader before entering a PIN. Or your credit card details may be embedded in an app on your phone that allows you to skip paying with plastic altogether.
Issuers, meanwhile, will continue to experiment over the next year with cutting-edge technology -- and a wealth of new data -- that will help them lure new customers and encourage cardholders to spend.
CreditCards.com talked to some of the nation's leading credit experts and asked what lies ahead in 2014. Here's what they had to say:
1. You'll see more EMV chip cards around town. Issuers are gradually rolling out new cards with EMV chip technology, which is used around the world and is designed to cut down on fraud. U.S. merchants have less than two years to install new terminals and begin accepting cards with an EMV chip. (After Oct. 1, 2015, they'll be held liable for any fraud losses that occur on terminals that don't accept cards with a chip.) However, don't expect a rapid shift, say experts.
"There's a natural replacement cycle for payment cards, roughly every 3 to 4 years," says Randy Vanderhoof, executive director of the EMV Migration Forum. "A lot of the financial institutions are starting to incorporate in their replacement cycle the introduction of EMV," he says, and they may ramp up their efforts in 2014, since it's in their interest to issue more EMV chip cards by the time merchants have to upgrade their systems. Not all issuers are in a hurry to switch everyone over. "I don't expect every card issuer to have reissued all their cards by the deadline, and I don't expect all the merchants to upgrade their equipment," says Steve Kenneally, vice president of the American Bankers Association's Center for Regulatory Compliance. "Everyone's trying to do the math," he says. "For each bank, it will be different."
2. Advertisers will target your smartphone. One of the biggest smartphone trends for 2014, say experts, will be the increased use of geolocation technology to spot when you are in or near a store and send you a promotion based on your location. "We're going to continue to see more and more in-store retailers implement a mobile component in their in-store shopping area," says Aleia VanDyke, a payments analyst at Javelin Strategy and Research.
For example, if you download an app on your smartphone that allows a retailer to track your location through your phone, the retailer (or a financial partner) may text you coupons if it detects you're walking nearby -- or it may offer you exclusive promotions through your phone while you're in the store. "I think it's going to change how the consumer perceives how they can shop," she says. Companies will have to be careful, however, not to turn some consumers off with the new technology, says Tom Johnson, vice president of business development at Zoot Enterprises. That's true, he says, for all kinds of different technologies that lenders and businesses now have access to -- particularly these days when revelations about government spying have made people extra sensitive about privacy. "It's a very thin line," he says. In many cases, "the question isn't, 'Could I do this?'" says Johnson, it's "Should I do this?"
3. You could see an uptick in fees. Sweeping federal regulations have made it much harder in recent years for banks to earn money on interest income, over-limit and late fees and debit card swipe fees. Also, consumers' widespread reluctance to carry higher balances has taken a substantial bite out of the income they earn off of interest, says card analyst Robert Hammer. "Interest income has fallen pretty dramatically," he says. To recoup some of that profit, Hammer expects issuers will examine the services they provide and start charging more fees in the years to come. "You have restrictions, but you also have opportunities, even in our current regulatory environment," he says. "There are going to be categories that have never been charged that will be charged."
4. Fewer cards will have foreign transaction fees. Foreign transaction fees -- the 2% to 3% charged cardholders when making purchases abroad -- are becoming increasingly less popular, says Andrew Davidson, senior vice president at Mintel Comperemedia. "We're getting to the point in travel rewards that you can't launch a new card with foreign transaction fees these days because it's not competitive."
5. Mobile payments will continue to grow slowly. It's been a tough couple of years for mobile payments. Most consumers are still content to stick with old-fashioned plastic, while large numbers of merchants are reluctant to install the expensive upgrades that are required for certain mobile payment technologies, such as near-field communications (NFC). "It's interesting because mobile payments have been the next big thing for the past five years," says the American Bankers Association's Kenneally. Kenneally expects mobile payments to spike in the next year. "It could go up 2 percent or 3 percent this year," he says. "But that's still not a big number overall compared to the rest of the payments market." Aleia VanDyke of Javelin Strategy and Research predicts that other types of mobile payment technologies -- such as scanning a barcode delivered to your phone -- will become more popular. "NFC is kind of taking a backseat in terms of other mobile payments," she says. "We've really seen a greater adoption of bar codes and cloud systems, which I think will be carried on in the future. It's a much easier system to implement."
6. Folks with less-than-perfect FICO scores will see more offers. Issuers still aren't making it easy for consumers with blemished credit to qualify for a new card. However, they are selectively reaching out to a limited group of consumers with lower credit scores -- and, in many cases, they're doing it by using nontraditional data to help find people whose scores make them look riskier than they actually are. "There is a category emerging that I would call near prime," says card industry consultant Robert Hammer. Their scores are close enough to prime that lenders are willing to take a chance on them and offer cards with lower credit lines. "Whereas, four years ago, they wouldn't have touched them," he says. Some lenders are also using nontraditional data, such as public records information provided by LexisNexis RiskView, in order to carefully evaluate consumers whose scores took a temporary hit during the recession, but who are actually good credit risks, says Zoot Enterprise's Johnson. "We're seeing a growth in those kinds of offers," he says. "They are trying to find those people who are not getting a ton of offers, but are emerging from the credit crisis and are reestablishing their credit or are just establishing their credit."
7. Card offers will become more personalized. Issuers continue to aggressively court consumers with the best credit scores. But in order to stand out from their competitors, they're now personalizing many of the card offers they send. "I think we'll continue to see more of a focus on customized campaigns," says Davidson. "Currently, offer terms are pretty good, with most offers promoting lengthy 0% introductory purchases for balance transfers, purchases or both," he says. To reach heavy spenders with the best scores, issuers are finding they need to do more than just offer long-term promotions. To do so, they are turning to supplemental data, such as transaction data, to tailor rewards and sign-up offers and lure those cardholders into saying yes, says Johnson. "When someone's got three credit cards in their wallet, you've got to find ways to differentiate your credit card," he says. "With some of the new data that the banks have access to, they are able to do a much better job of creating an offer for the customer." The days of, "I just need to get a card in everybody's hand" are over, Johnson adds.
8. Points rewards cards trump cash-back. Most offers these days include some type of rewards component. But the type of rewards issuers are offering is starting to shift, says Mintel Comperemedia's Davidson. "There's been a trend in the last year toward points and away from cash-back," he says. "Points are more flexible and more economical for the issuer."
9. More cards will encouraging responsibility. Issuers are beginning to offer more cards that reward consumers for good behavior and are less punishing when something goes wrong, says Davidson. "There's an emerging trend toward more responsible products," he says. For example, Bank of America's new Better Balance Rewards card offers an annual $100 reward for paying more than the minimum amount due each month, while the Discover "it" card forgives your first late payment and offers to work out new terms if you lose your job. The "it" card also shares your FICO score with you each month so you can keep tabs on your credit history.
10. Card rates will remain stable. Currently, purchase APRs on new card offers are relatively high, says Davidson, and they're likely to stay that way for some time. (The national average APR for credit cards is currently 15.06 percent.) "I wouldn't expect this situation to change much unless we see the Fed start to raise interest rates," he says. At that point, everyone's rates will automatically go up in tandem with the prime rate, which is tied to the federal funds rate. The Fed is unlikely to raise rates anytime soon, however. "There's really no chance that they're going to raise interest rates in 2014," says Paul Edelstein, director of Financial Economics at IHS Global Insight. The unemployment rate may fall to 6.5% -- which is when the Fed said it would consider raising rates. But if that happens, the Fed is more likely to adjust projections, rather than the lift the federal funds rate target, he says.
11. Credit use will slowly pick up. Experts doubt credit card spending will dramatically increase in 2014, particularly since the economic recovery is still uncertain. However, they do expect cardholders to gradually increase the amount of debt they're willing to let sit on their cards. "Traditional bank card debt over 2013 has somewhat flattened out and might somewhat creep up," says Trey Loughran, president of Equifax personal solutions. However, don't expect a dramatic spike, he says. "I think we can pretty clearly say that we're not at the bottom of a V. At this point, it's kind of become a U," says Loughran.
"It's unclear when we'll start to see the back half of the U start to come up." Store credit cards, on the other hand, are becoming more popular, says Loughran, and debt on retail cards may grow significantly next year. "The balances now are actually higher than they were before the recession," he says. Consumers may be more attracted to those cards, in part, because they're easier to get if you've got a less-than-perfect credit score and because they typically offer a bargain at the register, he says.
Consumers are also starting to use their credit cards more often, says Javelin Strategy and Research's VanDyke. According to new research from the Nilson Report, for example, credit card spending accounted for more than half of all spending on plastic payment cards last year and experts predict that credit cards will continue to grow in popularity in the years ahead. (Debit card use, by contrast, is actually slipping, according to Nilson.) "We're going to continue to see credit cards bounce back from their low point in the recession," says VanDyke, particularly now that there are more consumer protections. "I also think we'll continue to see alternative options [such as PayPal and prepaid cards] continue to grow," she says.
12. Card delinquencies back on the rise. The number of late payments credit card issuers receive is also bound to increase, say experts. After falling to record lows in 2013, experts predict card delinquencies will become significantly more common in 2014. In its annual forecast, released Dec. 12, the credit reporting agency TransUnion predicted credit card delinquency rates -- meaning, late payments by 90 days or more -- could pick up by almost 10% next year.
That's due in part to the fact that more cards will go to more people, thanks to a strengthening economy and more confident lenders. It's also because credit card delinquencies are currently so low they've already bottomed out, say experts.
"If we're not at the bottom of the cycle, we're probably very close to it," says James Chessen, chief economist at the American Bankers Association. That said, "I don't expect delinquencies to rise quickly," says Chessen. "I think we'll bounce around the bottom of this cycle with low delinquencies for some time." "Banks have made very good decisions over the past four and five years and consumers have deleveraged," he adds. That should ultimately make it easier for credit card issuers to take more chances in the new year. "We're in a very good position going into 2014. There's a lot of capital now, a lot of liquidity and consumers are better off."