Growing Trend: Consumers Use Debit Over Credit Card
By Gina Ragusa Published July 31, 2013 Credit Unions Online
Weathering a tough recession may have turned credit hungry consumers into wiser spenders as debit card usage has surpassed credit, says non-profit electronic payment group, SWACHA.
The group polled approximately 600 Texas residents; with 21% of the respondents saying that they reach for their debit card first (14% opt for their credit card). Additionally, 46% of the survey respondents said they pay off their credit card balance in full every month and 20% said they pay off their balance the majority of the time.
Houston Press writer Jeff Balke wrote that he understands how the trend is going more toward debit. “Personally, I have found this to be true of myself, particularly since 2008. Like many, I went through a tough time paying bills as my business's revenue dipped. I found myself fairly deep in credit card debt. Selling my house afforded me the opportunity to wipe it out, thankfully, and I have used credit cards sparingly ever since.”
Consumers May Choose Debit Over Credit To Stay Out of Debt
ABC News ran an article entitled, “10 Dumb Things You Do with Credit Cards” that further illustrated how consumers can get into a pickle with credit.
One example is making late payments. Not only will you be slapped with a fee, your account will be reported to a credit bureau if it is 30 days late. Credit card payment history makes up approximately 35% of your score.
Also, charging your card to the limit may also impact your score. In fact 30% of your credit score reflects card utilization.
Other errors that can hurt your financial position is going for a cash advance, ignoring the fine print (especially when you are dealing with a 0% introductory offer) and closing old credit card accounts.
Credit Unions Report Increase in Debit Usage
Although the transformation from credit to debit may be across the board, credit unions report a direct increase in member usage--many with both credit and debit cards.
“UW Credit Union had a 13% increase in total debit purchases in the first half of 2013, compared to the same period in 2012,” says Chad LaFlash, research and development director at UW Credit Union ($1.6 billion, Madison, WI). “But that aligns with our increase in checking accounts, so we haven’t seen a trend unique to debit card usage.” LaFlash adds that the credit union has not promoted debit cards in any special way over the past 12 months.
He notes that UW has also seen an increase in the number of credit cards carried by our members, due to promotional efforts and a new card offering last year. But the average usage of the credit union’s members’ cards has not increased.
Deb TenHave, card services manager at Redwood Credit Union ($2 billion, Santa Rosa, CA) said that the credit union is seeing both an increase in debit and credit card usage. “We are definitely seeing increased debit card usage at a significant rate. In fact, compared to this quarter last year, our debit transaction volume has increased 49.5%. An increase from 2011 to 2012 was only 22% for the same period.”
Additionally, credit card usage has also increased. “About 13% year over year, but this is up only slightly from the prior year. So members are definitely increasing their debit card use at a much higher pace.”
TenHave says that to some degree, consumer behavior is changing as they recognize the convenience and security of using a debit card over a checkbook. “Debit cards can be used for online transactions. Debit cards reduce paper waste and people in our Northern California communities tend to be very environmentally conscious. Also, online and mobile banking make it easy for members to track their transactions in real-time, so it really is convenient.”
For Credit Union ONE ($730.8 million, Ferndale, MI), a special rewards program has helped to boost recent debit card usage. "We have experienced double digit growth in signature debit card usage, the consumer has to sign for purchase instead of using PIN, among Credit Union ONE members every year since 2010,” says Swaminathan Seetharaman, senior vice president and chief marketing officer. “We launched our Cash Back Rewards Checking product in June of 2009; members earn one point for every $2 spent. When members earn 3500 points, they can redeem for cash ($25) or it is automatically credited to member's account every 12 months. This Rewards Program has changed the way our members use the debit card. During the same time, PIN debit usage remained flat. Credit Union ONE has paid out over $2 million in Cash Back Rewards since the launch of the Rewards Program."
Do you favor your debit or credit card and if so why?