Debit Wins…Why?

by Scott Loftesness on May 4, 2009

in Debit Cards, Scott Loftesness, Visa

Scott Loftesness

Last week, Visa reported its second fiscal quarter financial results – and included a mention that Visa’s US debit card purchase volume in the fourth calendar quarter of 2008 slightly exceeded that of its US credit card purchase volume ($206 billion vs. $203 billion).

Today, in another press release, Visa reinforced that point.

Six years earlier, in 2002, the transactions on Visa debit cards in the US exceeded the transactions on Visa credit cards for the first time.

In fact, purchase volume on credit cards has been shrinking of late – with Fitch reporting today that spend volume at the top six issuers fell an average of 14.2% sequentially in the first quarter of 2009 and 14.0% year-over-year.

Obviously, consumers are increasingly shunning credit cards in favor of using their debit cards. It’s been a long road – from the early days of debit cards in the early 90’s to today. Back then, retail bankers were very concerned about fraud risks on signature debit cards. But, with increasing levels of electronic POS authorizations, many of those risks fell away. The utility of the signature-based debit card – accepted at almost all merchant locations – can’t be beat.

What else is driving increased consumer usage of debit cards? Fewer merchants willing to accept traditional checks? Speed of checkout?

What do you think? Please add your comments below!

10 Responses to “Debit Wins…Why?”

  1. I have to think that lack of available credit on revolving lines is contributing to this effect, too. Issuers are have been aggressively dropping credit limits for the last 12 months.

  2. pwb says:

    Partly because consumers are not that smart but I think the credit card companies’ obnoxious behavior is also a large contributor.

  3. I should have also mentioned that personally I never use a debit card at the point of sale.

    For me, a rewards and float junkie, using my debit card just doesn’t make economic sense! My personal debit card serves only one purpose: obtaining cash at ATMs.

  4. Scott,

    I’ve seen this first-hand, in the most unlikely of places: farmers markets.

    We accept credit cards at our farmers market stall in Healdsburg, Santa Rosa, and Marin. In all three, we have seen an increase in the number of card transactions this year versus last. But we have especially seen a jump in the use of debit cards, which were a footnote last year and are now well more than half of all transactions.

    Hard to tell in our online store, of course.

    DaVero Farms

  5. Probably lots of reasons for the growth, but my guess for the most common is conservative budgeting practices. Rewards cards aren’t worth much unless you have high volume and can cope with a big lump sum payment at the end of every month, which can be painful. Life is unpredictable and using a current account eliminates some risk at least.

  6. Dave Fortney says:

    Signature debit makes no sense if you’re like Scott and get rich rewards on the credit card, and pay it off in full each month, before the due date. But if you slip up once with the ever-shortening payment windows and get whacked with the late payment fees or the double-cycle billing interest fees, etc. then you would have been better off using debit. And for most people, the rewards haven’t amounted to much. The airlines used to be terrific, but now with all the blackouts and premium award levels, the value of the rewards has diminshed.

    So far, I’m like Scott and have never used my “debit” card outside of the ATM. In fact, I don’t sign it on purpose. It says not valid unless signed, but so far the ATM hasn’t had a problem!


  7. I’d like to see some data – perhaps a consumer survey? that shows whether or not consumers are turning away from credit towards debit. I suspect that is not the real reason behind the numbers Visa reported – that instead, what is happening is that more and more consumers are using debit instead of cash or checks. This is the “tipping point” phenomena we have seen with debit for several years now. Many people who have used check or cash to pay for groceries would never consider using a credit card – it would just seem “wrong” to possibly go into hock for this kind of purchase. But a debit card makes complete sense. (And as you know, Scott, I never use a credit card at the grocery store!)


    • Carol, yes – it would be great to see some consumer survey data about payment preferences. Maybe we should commission a Facebook poll – I’d especially find the age sensitivity of interest.

      Something else that’s not been discussed here is that revolvers know too well that the interest on their purchases begins accumulating from the date of purchase – i.e., no grace period for revolvers.

  8. Dave, wonder how many industry insiders actually use their debit cards at POS? And how that compares with the general public? (We’ll have to grant Carol an exception, of course, for her bizarre behavior in favor of using her debit card at the market!)

  9. Ben says:

    In my opinion debit is winning because its the most efficient payment vehicle.

    Industry folks and rewards junkies aside, most consumer don’t care about rewards, float, or payments, they care about the stuff they are buying. Debit allows you to buy your stuff, and not have to think about the payment again. Credit allows you to buy your stuff, and a month later remember to pay your bill, or you will be penalized in a variety of ways.

    I agree with Carol, that debit is the logical replacement for cash and check (all DDA based), where credit is really a highly efficient borrowing vehicle. The US is one of the only countries in the world where credit is even close to debit spend, and that is really a result of historical laws around interestate banking, that made our payment system incredibly inefficient up until around 1990. In almost all other markets debit (and ACH) are the primary choices for consumer payments

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