Debit Card Users Prefer Debit Cards Over Credit Cards

TSYS, a global payments processor, and Mercator Advisory Group, a research firm, conducted an online survey of more than 1,000 debit card users whose cards were issued by a financial institution. They were asked about their payment choices, debit card usage and feedback on being charged fees for debt card usage.

These questions were asked to determine how consumers will react to banks charging for debit cards.  Some financial institutions plan to charge for debit card usage in reaction to the Durbin Amendment to the Dodd-Frank Act, which becomes effective on October 1, 2011.  This amendment sets a cap on the fees banks can charge merchants for swiping debit cards issued by the bank.   The fee is half of the amount the banks received previously, and some banks are charging consumers for debit card usage to make up for the loss.

Those surveyed preferred to use debit cards for purchases and credit cards were a distant second. If they stopped using their debit card, most would use cash instead of credit cards.  More than half would close their checking account or stop using their debit card, if they had to pay fees to use it. There was no difference in responses by age, income or gender.

Key Findings

Of those surveyed, 73% had a credit and debit card, 54% had a retail and debit card, and 20% only had a debit card.

Their favorite payment type was debit card selected by 57%, credit card by 21%, cash by 12%, check by 2%, prepaid card by1% , charge card by 1%, and retail card by 1%.

Approximately 75% of debit cardholders had never paid a debit card fee or overdraft fee for using their debit card.

If they were charged a monthly fee of $1 to $2 for their debit card, 26% would use it as usual, 22% would use it less, 27% would stop using it, and 25% would close their checking account.

If they were charged 5 or 10 cents per debit card usage, 15% would use it as usual, 29% would use it less, 20% would stop using it, and 36% would close their checking account.

If they cancelled their debit card because of the fees charged, 53% would use cash, 26% checks, 24% credit card, 21% PayPal, and 8% retail card.

Monthly debit card usage was as follows:

3% don’t use it

23% use it 1 to 4 times

24% use it 5 to10 times

27% use it 10 to19 times

21% use it 20 times or more and above

Responders were asked what payment method (debit, credit or cash) they used most often at seven merchant categories – grocery, gas station, discount store, department store, online shopping, convenience store, and fast food.  Debit was the first for all categories except fast food.  Credit was the second choice for most categories, except convenience store, fast food and discount store.  Cash was the first choice at fast food locations; cash and debit card tied for first choice at convenience stores.

Consumers have been using their credit cards less, paying down debt, and trying not to incur additional debt, as a result they are using debit cards.  If they are charged fees for debit cards, approximately half of those surveyed would stop using their debit card or would cancel their checking account, and would use cash as the alternative.  The banks that are charging or plan to charge fees for using debit cards may not get the revenue they anticipate.

Credit Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Report, Credit Score, Debt, Debt Management, Money & Identity

This post was written by John Ulzheimer