Recently, I read an article in the Financial Post, discussing the introduction of virtual credit cards. Visa, the world’s largest credit card company, announced that they are going to be launching a “digital wallet” that is expected to be broadly accepted. Mike Bradley, head of products for Visa Canada, was not able to provide the public with a specific date for the launch of this new product, but said it would be sometime in the fall of 2011. The way this new digital card works, is that users will save their banking information so that when the time comes and the user wants to make an online purchase, all they have to do is enter their email address and password. This is convenient to users because they will never again have to enter any billing or shipping information when shopping online.
The textbook Working with Economics discusses the different categories in which individual demand for money can be divided into. 'Transactions' is one of these categories, and it concludes that the amount of money held for transaction purposes depends on the level of income of an individual. This means that people are often limited to how much they can spend on a day-to-day basis. However, the textbook also mentions the function of a credit card. Credit cards lend out money to people, allowing them to spend and pay it back afterwards. This factor allows people to spend out of their level of income.
The textbook mentions that a credit card requires authorization in order for to be used. This means that it must be determined that the person’s credit limit has not been overextended, and also that they are capable of paying back loans. Since the Bank of Canada is constantly battling people who put themselves in debt, I think that Visa is going to have to really think about the consequences of giving people easy access to loaned money. Since this new digital wallet will make it easier for people to make online purchases, people will spend more and possibly even get into a lot of debt by simply paying the minimum charge on their visa bills. Although spending is good for our economy, spending money that doesn’t exist in people’s wallets isn’t.
Link: http://www.financialpost.com/news/Visa+moves+virtual+credit+cards/4768237/story.html
Your article ties in nicely to chapter 7. I liked your insight on the consequences of giving people access to loaned money. There will be lots of people who will go into debt if they're not careful of what they spend on.
ReplyDeleteI think that Visa is going to make alot of money by making loaned money for assessable. Once you lend out a loan, you are responsible for that loan until you pay it off. I think people are going to loan out more, which in turn leads to more people going bankrupt. However, we should not be overly concerned. People with good spending habits and keep their budget balanced will be able to use these cards, not go into debt, and enjoy the new added convenience. However, for those who have impulsive spending disorder, they are definitely in big trouble. Hopefully, these adults will be responsible for themselves and not spend more money than they actually have.
-justin wan