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February 4, 2025In its quarterly earnings report, American Express said that 2024 was an especially good year. As always, it collected massive money from merchants. And yes, it charged huge card membership fees. However, rather than its wealthy dependable clients that pay the entire bill every month, AMEX collected rising revenue from the non-payers. Since 2022, net interest (on unpaid credit card debt) was their fastest growing revenue source:
We could say that Americans are spending more and paying back less.
Debit and Credit Card Spending
According to the Diary of Consumer Payment Choice, non-cash payment transactions have been on the rise since 2020. Making more than 60% of our payments with credit and debit cards, our cash use remained stable. However, if you are younger than age 55, then 12% of your payments were in cash. By contrast, those of us that are older than 55 used cash for 22% of our payments. Furthermore, cash was used less for $25 and under transactions.
Consequently, credit and debit dominate our payment transactions:
Our Bottom Line: Payment Pain
Researchers have observed that the pain receptors in our brain can be activated when we spend cash. A behavioral economist would say the reason is loss aversion. By contrast, because spent money is invisible when we use plastic or our smart phones, our loss aversion diminishes.
In addition, it is so easy to pay with a phone that economists say we have a frictionless transaction. With mobile as a form of payment, shoppers carried fewer cards and saved approximately 10 seconds when paying for an item. Perhaps, as a result, according to a 2023 paper with data from one bank, consumers charged 9.4 percent more after adopting mobile payments.
Those frictionless transactions diminish a phenomenon called coupling. Defined as the extent to which a purchase reminds us of our payment, coupling is weakest when we pay with cards from companies like American Express.
Most cleverly, though, when Amazon uses 1-click with our debit or credit card, coupling and payment pain disappear.
My sources and more: Thanks to Sherwood’s Chartr (email–a great free subscription) for inspiring today’s post. From there, leaping from American Express to the Fed’s Diary of Consumer Payment Choice, we could see the big picture.
Please note that parts of today’s “Bottom Line” were in a past econlife post.