Why Debit Cards?

The consumer payments system in the U.S. consists of paper (i.e. cash and checks), cards (i.e. debit, credit and prepaid) and other electronic (i.e. Automated Clearing House [ACH]), wire transfers and e-checks) payments types. Electronic payments are the fastest growing consumer payment types in the U.S. (measured by dollar volume and number of transactions) while check usage continues to decline1. Within cards, debit card transactions and dollar volume are growing at a faster rate than credit cards2.

There are a number of reasons why card-based payments are increasing in the U.S.3:

  • Consumers are more comfortable using electronic forms of payment for everyday purchases and bill payments, and they value the increased speed, convenience, and control offered by electronic payments
  • The financial services industry has invested heavily to promote the use of credit cards, debit cards and online financial services
  • Most Americans now have some type of access to the Internet making if easier to conduct financial transactions online, typically using electronic payments options
  • The younger generation prefers using electronic forms of payments and, as this generation matures, the overall payments mix will continue to shift away from paper

In 2004, there were nearly 1 billion financial institution-issued payments cards in the U.S.: approximately 680 million credit cards in circulation and 294 million debit cards4. The vast majority of debit cards can operate as either a Signature or PIN debit card at the point-of-sale (POS), and can also be used at ATM's. Although there are only two debit cards issued for every five credit cards, total debit transactions are approximately 83% of those of credit as illustrated in the Graph Below. Debit cards have experienced the fastest transaction growth of all consumer payment card types5.

[U.S. Credit and Debit Card Transactions by Card Type.]

1. 2004 Federal Reserve Payments Study, Federal Reserve System
2. ATM & Debit News, Volume 4, Number 45
3. Edger, Dunn, & Company Analysis
4. ATM & Debit News, Volume 4, Number 45
5. 2004 Federal Reserve Payments Study, Federal Reserve System

 

Debit Cards Preferred Payment Method in U.S.

As illustrated in the Figure Below, average annual transactions per debit card surpassed transactions per credit card in 1999 and now represent almost double the activity per card. Consumers used their debit card nearly twice as frequently as credit (62.2 vs 32.6 times) in 2004.

[U.S. Average Transaction per Card.]
 
Increasingly, debit cards are becoming the preferred method of payments at the point-of-sale in the U.S. According to Edgar, Dunn & Company's 2005 PaymentDynamics Preferred Card Study, nearly half (48%) of all consumers surveyed prefer to use their debit card as the preferred payment option. Debit at the point-of-sale (rather than at the ATM) has been the primary driver of growth for debit card transactions.