Payment cards are becoming an increasingly dominant method of conducting commerce, according to the 2005/2006 Study of Consumer Payment Preferences, a nationwide consumer payment preferences study conducted by the American Bankers Association and Boston–based consulting group Dove Consulting, a division of Hitachi Consulting, and sponsored by ACI Worldwide, Citi, The Clearing House, and MasterCard.

With the emergence of prepaid cards, the spectrum of card–based payment options is now complete. Consumers can choose to pay before, during or after a purchase—and most consumers choose to exercise one or more of these options.

The original card–based payment method, credit cards, continue to be a popular payment choice across all three major payment venues. Credit cards represent 19 percent of consumers’ in–store payments, 55 percent of Internet payments, and account for an increasing number of online bill payments and automatic payments.

However, consumers’ reported use of credit cards appears to be slowly declining. Although the number of merchants and billers accepting credit cards is increasing, credit cards’ share of in–store payments is down from 22 percent in 1999, and 21 percent in 2001 and 2003. Between 2003 and 2005, credit cards’ share of Internet purchases fell from 64 percent to 55 percent.

Study results indicate that debit cards are encroaching on credit card transaction volume, and that debit use has a negative impact on consumers’ planned credit card use. On net, 7 percent of consumers who use debit cards expect their use of credit cards to decrease over the next two years. Contrarily, consumers who don’t use or don’t have debit cards expect to increase their use of credit cards over the next two years (net 16 percent and 6 percent, respectively).

Eighty–three percent of consumers report having a debit card, and of those, 95 percent have signature–capable cards that can be used for both PIN and signature debit transactions. Although most consumers use both PIN and signature debit, 48 percent of consumers reported a preference for PIN debit, while 34 percent indicated a preference for signature debit (18 percent have no preference between the two).

The fastest growing payment method (albeit from a very small base) is prepaid cards, with the share of consumers’ in–store payment mix doubling from 2 percent in 2003, to 4 percent in 2005. Although an increasing number and variety of prepaid applications exist in the marketplace, only gift cards have gained widespread consumer adoption to date. Currently, 65 percent of consumers have either purchased or received a gift card.

Consumers’ use of card–based payments is increasing across all three primary payment venues. Looking forward, growth of card–based payments is expected to continue to increase, driven by consumer preferences, greater merchant acceptance and the introduction of new payment applications that leverage the existing payment card infrastructure.