Debit-card use is on the rise. It's now the preferred card of choice -- at Visa -- when it comes to purchases. On a dollar-volume basis, Visa-branded debit cards inched ahead of credit-card purchases during the last three month of 2008.
From the Wall Street Journal (hat tip Don in SW OH): The urge to not splurge by thrift-conscious consumers is giving the debit-card revolution a new push. On Wednesday, Visa Inc. reported that the total dollar volume of purchases made using its branded debit cards surpassed credit-card purchases for the first time during the last three months of 2008. The $206 billion in U.S. debit-card transactions processed by Visa were 50.4% of the San Francisco company's total transaction volume in the period, up from about 40% in 2003.
"The reality is that the vast majority of consumers want to pay as they go," said Stacey Pinkerd, who oversees Visa's debit-card business.
Credit-card issuers better be careful. If debit cards ever become the overwhelming choice for payments, card issuers will have to figure out another way to enrich themselves (you'd think that interest fees will fall as debit-card use continues to rise).
Read the rest of the Journal story here.
Thursday, April 30, 2009
Debit-Card Use Overtakes Credit
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44 comments:
CM, don't card issuers still get interchange fees on debit cards when a PIN isn't used? USAA pays 1/2% rewards on its debit MasterCard when swiped as credit. A 3-5% tax on a huge swath of the economy ought to be enough for the banks if they "can't afford" to issue credit cards after Congress is done with them. Straying off topic here, but I think Chase's stunt with the fee and minimum payment increase for accounts with low life-of-balance transfers was the push over the edge into aggressive regulation.
DM, yes. These cards still garner them interchange fees.
My guess is that card issuers will start trying to sell the public on paying in full -- using credit cards. But, of course, a lot of people won't be able to pay in full all the time and then the card issuers will start collecting interest there.
I wouldn't use the blanket statement that Debit cards are being used more than Credit cards with only information from Visa. Aren't they the largest Debit card issuer? I am pretty sure if you factored in all Debit and Credit cards that Credit still has an edge.
Although the information is still significant because there is a rising trend.
~Spyder Monkey
I use credit more than debit nowadays, ever since I got my cash rewards card from Penfed in 2008.
Before that, I was using mostly debit.
Funny how that is.
Spyder, I was only talking about Visa. I very prominently pointed that out at the top of the story.
You're right, though. Using just Visa data isn't enough.
Vibe, you're crazy!
Hey, I like it when people use no-reward debit cards. Helps to subsidize my rewards.
I am very happy with Visa's results.
CM and I discussed this a few months ago- suprised he didn't jump in.
Debit cards are for pulling cash from an ATM-
Disclosure: I hold V stock.
I was wondering if anyone knows about prepaid visa cards? i was reading about some on the lowcards.com website and one called "ReadyDebit Visa" sounds interesting. Although payment fees have to be paid, the card is reported to the Credit bureaus. Maybe this can help build credit?
Tim, that's right. I remember that conversation. We were surprised, back then, by how well Visa was doing. More of the same this quarter.
I have no plans on using a debit card. I like the rewards that credit cards have. I like knowing if my credit card number is stolen I am not on the hook for the charges. I like that many credit cards double the warranty on purchases. Debit cards don't offer the features I want. I like keeping my money in the bank earning interest as long as possible while using a credit card to make purchases, then paying in full. That is how anon rolls. :)
BTW, you guys see the new Citibank Forward credit card? 5% cash back on restaurants, fast food, books, movies, music (including almost everything sold at amazon.com). Nice rewards! If someone posts FICO scores and initial credit limits, I might apply for it. I'd like to get at least 10K and more. And the Citibank Forward card lowers the APR every three months of on-time payments. Not a bad feature.
If someone has experience with Citi Forward, feel free to post the information here.
Consumer Spending Slipped in March
http://www.nytimes.com/2009/05/01/business/economy/01econ.html?ref=business
Fed Cites Easing of Decline and Affirms Policy
http://www.nytimes.com/2009/04/30/business/economy/30fed.html?ref=business
Visa profit up 71 pct, beating Street forecast
http://finance.yahoo.com/news/Visa-profit-up-71-pct-beating-apf-15077844.html?.v=9
It seems a little obvious that Bank of America may be pushing their customers too now to use the debit more than credit cards..
With their Add It Up Cash Back program for their debit cards. I generally use credit as well, but I enrolled just in case.
Anon @ 11:14: Here here! For me, debit just can't compete with the benefits of credit (as long as I continue to PIF).
CM -- Maybe I missed it in another thread -- Did your wife ever finish her cash challenge? To spend less by not using credit? Was she going to use debit cards, or actual bills? What were the results?
christina
You didn't miss it. She is now on her second month. The first month we isolated all of the non-essential spending (not necessities). Just on those kinds of purchases, she saved about $30. She's now doing it for a second month. Want to see if we can get a trend here.
CM, I'm crazy? I roll with Anon @ April 30, 2009 11:14:00 AM EDT
;-)
I know you're benefiting from cash rewards on your Penfed. Makes you crazy, too, right? LOL!
Finally geedy banks will be punished..from yahoo news:"WASHINGTON – Riding a crest of populist anger, the House has cleared a bill to rein in credit card practices and eliminate sudden increases in interest rates and late fees that have entangled millions of consumers.
The legislation passed Thursday by a bipartisan vote of 357-70 and follows lobbying by President Barack Obama and members of his administration.
The measure would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18.
If they become law, the new measures won't take effect for a year, except for a requirement that customers get 45 days' notice before their interest rates are increased. That would take effect in 90 days."
Hi CM, How can I get in touch with you besides the comment section on your blog? I saw your e-mail address somewhere, but don't remember where.
Thanks!
This makes me wonder... What exactly will banks come up with next to capitalize on this trend? Without a doubt, they will come up with a legally sound manuever to effectively charge customers to make purchases with their own money (including those who are not overdrafting)!
Debit cards have their place. Purchases where you can leave with the merchandise on your person, observe the prices being rung up in front of you and follow through what happens to your card is perfectly fine.
Other places... perhaps not so much.
I still prefer credit cards for purchases and ATM/debit cards for cash withdrawls (they're two distinct cards, but I'll lump them in one category for this point), thank you very much.
I like the consumer-side benefits (I've only signed up with creditors that have reasonably good customer service) and the rewards (still better than what I can get with cash with some merchants).
Anon: CM's e-mail is plastic101@gmail.com
Thanks azntg :o)
I also think that the reason debit card use has increased is due to the launching of rewards checking accounts over the last year or so. And these accounts have gained popularity with the fatwallet crowd who are looking for higher interest rates. I myself recently signed up for my first rewards checking account and since I have to make 10 purchases per month on the card to earn the higher rate I am spending about $30-$40 a month on debit that otherwise would have gone to my credit cards. I use credit for everything except to reach the 10 transactions on my rewards checking and when financial institutions offer special promos for using a debit card like Citibank and National City did over the holiday season.
Its unbelievable that people actually use Debit cards over Credit cards. I think that is a big NO-NO. the reason is Debt cards have less protection than credit cards. Using Debt cards can really screw up your account at the Gas station, because Gas stations take out 75 dollars and hold it a few days. Its less a problem than for credit cards, since they've been doing it years. I would love to find a website that lists in full all the comparsions of credit cards, debt cards, and prepaid cards. The websites i've visited are pretty much minimal and give a lot of b.s. on the cards. Plus, banks are changing alot of stuff on debt cards. Some debt cards have overdraft line of credit linked to it, essentially making it a credit card. Neverthless, I think the wisest thing is to use cash. Less mistakes, less chances of checking account overdrafting, losing money to overdraft fees. Aha, this is what banks REALLY want you to make, so they make even more money off of you suckers using debt cards. If someone screws up and their checking bounces, there's another system called ChexSystem that is watching. Big Brother is everywhere to watch you if you screw up.
I used to be huge credit card guy and carried (still carry) some huge balances I have been paying off over the past couple of years. But the aggressive tactics of Bank of America have left me (a) opting out of all increases and switching to straight up cash for my wife and myself save a few purchases a month for convenience on an old card I have.
I agree with prevoius comments here that debit cards lack many of the protections of credit cards. However, in all, if this trend keeps up or increases, banks are really losing out in my opinion - first the lose out on the credit card transaction fees and interest and secondly, they the banks overall capitalizaion would be lower as the money will be leaving their coffers when sooner rather then later when c-card balances are paid off.
Am I missing something here? I would think banks would be against this trend (or realize they are against it as soon as they are done running scarred from consumers). Legal Begal
I need to clarify my comment this morning about my using more credit than debit:
I PIF.
There, credit can be same as cash.
;-)
Am I right?
Not sure what you're referring to, V, but you're always right. So whatever it is, yes. You're right!
I dunno if I'm always right, LOL!
I was referring to my previous comment that credit can be same as cash as long as we PIF?
Except we get the benefits that the cards provide, as far as protection, warranties, rewards, etc.
"...credit cards provide"
I'd like to think that you're right. My cards act as same as cash. I charge during the month. I pay after the statement cuts. I don't pay interest. Same as cash.
Then we're both right!
Plus, we get the rewards, as well.
In the past, when I was using my debit card for groceries, I was missing whatever rewards because I was too stubborn to apply to credit cards that provided them.
That all changed in 2008, when I got my Penfed.
And they do provide those things too -- including rewards. I've earned almost $200 in cash back on my Chase Freedom card. I have not redeemed the cash yet because when you get to $200 Chase throws in an extra $50, making my cash back $250. Can't beat that!
Speaking of groceries (excuse my penchant for going off-track), I use the reusable bags that the grocery store provides. Mine cost $1, but I get 5 cents back for using it while shopping.
Doing my part in using less plastic. (Oh, now isn't that ironic! LOL!)
Very nice, V. Good work!
Anon @ April 30, 2009 5:46:00 PM EDT
Thanks for that info. I did not know that checking accounts have rewards. Well, my bank better watch out, because I may just be on the prowl for those types of checking accounts.
I need a head start from those who have already established these types of accounts.
Applause! I like using my debit card and getting cash at the register with no ATM fee! Also this way I do know I don't have to worry about a credit card bill at any time during the month or ever!!!!!!! LOL
CiifIcare
VR - I don't have a rewards checking acct (yet), but I recently found a link to this list:
http://www.highyieldcheckingdeals.com/2008/03/high-yield-reward-checking-accounts-by.html
I wonder if the increased debit card useage is replacing credit card payment, or is replacing cash/check payment? Is this a result of people avoiding or not being able to use credit cards? Or are more people finally adopting 'plastic' payment mode?
Will we see debit-card's lower transaction costs motivate merchants to give customers an incentive to use Debit versus credit cards? Could that be a long-term threat to credit cards as we know them?
-Chiti
Thanks Anon @ May 1, 2009 1:47:00 PM EDT!
I will chieck it out after work!
"Check it out."
No pun intended! LOL!
I don't think the U.S. banks are quite that worried about this trend. One has to remember that they get to screw most of the same people (low income, living paycheck to paycheck) just as badly if not worse on debit cards as they do credit cards.
The biggest problem with debit cards, when charged as credit anyway, is the fact that transactions still float just like credit card transactions or check transactions. As a result, if you're not paying attention, you'll overdraft, and get slapped with a nice courtesy overdraft fee of $35 if you don't have overdraft protection and a sky high overdraft APR regardless of protection. Couple this with their most to least expensive transactions processing in a day, and those overdraft fees can pile up fast.
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