Cardholders' credit limits are shrinking during the pandemic - Business Insider

By lowering credit limits and closing cards, issuers can potentially prevent cardholders from making purchases they won't be able to cover later on, improving issuers' performances during the pandemic.

But consumers may need to use credit cards regularly during the pandemic, so restricting their spending could frustrate cardholders. Consumers now have limited access to physical stores, promoting e-commerce, which requires digital payment methods like credit cards. And as consumers face unemployment, credit cards may be particularly appealing since they offer payment flexibility.

It's possible that consumers who find their limits slashed and cards closed will turn to alternative payment options, especially younger consumers who are still forming payment habits, potentially harming issuers' future volume. These consumers may be forced to rely on other payment options, like buy now, pay later solutions, during the pandemic if they need some form of credit but can't rely on a credit card.

As a result, these consumers may continue to use such options after the crisis subsides, which could have a notable negative effect on issuers' performance in the future since younger consumers, who are just spending power, may not be as interested in using credit cards regularly after their limits were adjusted during the pandemic.Business Insider Intelligence analyzes the payments and commerce industry and provides in-depth analyst reports, proprietary forecasts, customizable charts, and more.

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