As Debt Increases and Business Use Rises, Can Fintech Disrupt Our Personal Credit Card Use

By: Lee Rickwood

July 22, 2022

Our use – even reliance – on credit cards is increasing.

On average, each of us saw our monthly credit card spend rise 17.5 per cent in the early part of this year (compared to the same period last year).

In its latest consumer credit trends and insights report, Market Pulse, Equifax Canada says that we each owe more than $20,700 (excluding mortgages) and our total consumer debt increased by 8.6 per cent to $2.3 trillion in the last 12 months.

plastic signs shows various corporate credit card issuers

“Credit Card Issuers” by Philip Taylor PT is licensed under CC BY 2.0.

At the same time, a worryingly large percentage of small business owners continue to use their own personal credit cards to pay for business-related purchases and expenses.

A recent study by the Canadian Federation of Independent Business puts the figure at around 30 per cent of entrepreneurs who are doing so.

It’s clear that the pandemic-triggered shift to remote and home-based work has impacted how businesses and employees alike handle corporate expenses; that in turn has impacted how we handle our personal finances.

Incurring business expenses on a personal credit can have numerous negative impacts, for the individual and the business. Lost productivity time due to the sorting, separating and processing of expenses and charge-backs to corporate cost centres or operating accounts. Confusion if not complications at tax time can result for the same reason.

And for younger employees, gig workers or part-time contractors, it can mean added financial stress amid a time where almost half (46 per cent of Gen Zs, 47 per cent of Millennials) say they live paycheque-to-paycheque.

Concurrently, that’s where most of the precedent-setting increases in credit card spending are taking place: “Across age groups, Gen Z and Millennials are driving up higher consumer spending the most,” said Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada, when the Market Pulse report was released.

Overall credit card balances are up by 9.5 per cent in year-to-year comparisons. New card volume was up by 31.2 per cent, and lenders are providing higher limits on new consumer credit cards, the highest they’ve been in years.

It is a perfect financial storm for credit cards holders and small business operators.

In response, at least one Canadian fintech company has unveiled a new …. credit card.

hand touches laptop computer keyboard, credit card sits alongside

Float has released a spend management platform, a combination of physical and virtual assets that create new financial tools for start-ups, scale-ups and established businesses. Float image.

Actually, Float calls it a spend management platform, a combination of physical and virtual assets that create new financial tools for start-ups, scale-ups and established businesses to manage spending. Intuitive software, cloud-based analysis, local and remote access, comprehensive tracking capabilities and, yes, a physical plastic card, are brought to bear for not just the individual employee, but to various team accounts and activities across the business.

(A personal, individualized spend management platform might be a good idea, seeing how our personal debt load keeps rising.)

Focussed on business, however, Float, partnering with Angus Reid, conducted a survey indicating that 45 per cent of employers (whose employees use personal credits cards to incur business expenses) are racking up more company expenses since shifting to remote work.

If there’s an added cost to the corporate use of credit cards, for individuals or businesses, it is certainly in the swipe fees. Swipe fees — also known as interchange fees — are charged by the banks or credit card issuers to a merchant or vendor each time a customer uses their card to buy a product or service

Such fees have long been a bone of contention for retailers (if not educated consumers), even more so recently with word that swipe fees jumped 25 per cent last year, to a record $137.8 billion for credit and debit cards combined. When the National Retail Federation first started tracking swipe fees collected by Visa and Mastercard in 2001, the dollars amounted to roughly 20 billion.

And no matter the card, no matter the owner or user, penalty fees for late credit card payments continue to rise, as well.

A new report from the Consumer Financial Protection Bureau (CFPB) shows that credit card penalty fees are costing consumers $12 billion each year. So now the CFPB will begin looking into what it calls “excessive late fees.”

Another of the good reasons to reassess both our personal and business reliance on credit cards.

“Credit Cards” by Sean MacEntee is licensed under CC BY 2.0.

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