Credit Cards and Debit Cards in the United States and Japan

The widespread use of cards is one of the most salient features of consumer retail payment systems in the United States. American consumers use those cards to pay for about one-fourth of their retail purchases each year.1 And this is not a static phenomenon; among other things, the use of debit cards,2 though still relatively small, is rising rapidly.3 That pattern of use is not, however, typical of other IMAGE FORMULA6 countries. Even in some highly industrialized nations, consumers use cards to pay for purchases much less frequently. Statistics from the Bank for International Settlements, for example, suggest about sixty card-based payment transactions per person per year in the United States, but only four such transactions per person per year in Japan.4 But the differences go far beyond a simple willingness to use cards to make retail payments. The average transaction for which a card is used in Japan is much larger than the average card-paid transaction in the United States. At the same time, Japanese cardholders are much more likely to pay their entire bills each month than American cardholders: borrowing beyond the first statement period appears in only about one-tenth of Japanese credit card transactions, while about half of American cardholders borrow each month.5 The reasons for the differing patterns of use (or disuse) of cards have several important policy ramifications. First, in the countries in which cards are used frequently, their success suggests that they generally provide payment more cheaply and effectively than competing retail payment systems. By lowering the transaction costs of retail transactions, those systems generally bolster the efficiency of the economy's retail sector. Second, at least in the United States, leading scholars associate the credit card with an embarrassingly high rate of consumer bankruptcy-generally the highest of any industrialized country.6 Third, there is good reason to believe that wide use of credit cards is inversely related to a nation's savings rate. If, as some scholars argue, credit card usage causes the decline in savings,7 then policies that foster credit card usage are relevant to those aspects of macroeconomic planning that are affected by savings rates. Thus, concerned policymakers should welcome an enhanced understanding of the institutional factors that motivate the use of cards in general, or the use of cards as a borrowing device in particular. IMAGE FORMULA8 At the outset, it is natural to wonder whether the pattern is dominated more by factors of social construction than by those of institutional economics. For example, perhaps there is something about payment cards that is uniquely attractive to certain types of consumer personalities and perspectives. Thinking in that vein, you might suppose that card-based payment systems are more attractive to the relatively profligate and confident consumers of the United States and less attractive to the more prudent and cautious consumers in countries such as Japan.8 You also might think that the risk of street crime could explain much of the pattern. Focusing on that problem, you might suppose that Americans carry cards because of a reluctance to carry cash that might be stolen from them; Japanese have a lower incentive to carry cards because their relatively crime-- free society makes it safer to carry large quantities of cash.9 Those explanations certainly have some truth,10 but by themselves they cannot explain the pattern that I observe. In IMAGE FORMULA10 particular, because those factors are for the most part static, they cannot explain the significant changes in Japanese card usage that generally are making the use of Japanese cards look more and more like American patterns.11 The purpose of this Article is to explore the legal and economic institutions that might affect that pattern. …