WASHINGTON – A landmark study of consumer habits conducted by the American Bankers Association and Boston-based Dove Consulting has found that all types of debit transactions have continued to whittle away the percentage of payments held by cash and checks, and that the decline in those two older forms of payments might be accelerating. In the period between 1999 and 2003, the number of consumers using debit cards to make in-store purchases increased from 48% to 57% in the case of purchases in which a cardholder uses a personal identification number and from 42% to 54% in the cases where a cardholder validates the transaction with their signature. “All trends indicate that debit is an increasingly popular form of payment at the point-of-sale, and this study validates this phenomenon,” said Cindy Ballard, executive vice president of PULSE EFT Association, one of the study’s three sponsors. While the general trend may not be particularly newsworthy, the speed at which consumers appear to be moving to debit cards, particularly at the point-of-sale, appears to be growing faster. For example the report found that while the use of debit cards increased from 21% to 31% of total monthly transactions from 1999 to 2003, the bulk of that shift has come from checks and cash, the report found. According to the survey, cash remained the most frequently used payment method but has seen the greatest decline in relative share of transactions, falling from 39% in 1999 to 32% in 2003. More recently checks have also seen a decline, decreasing from 18% to 15% of in-store transactions. The report noted that this has taken place even though consumers remain confident about using checks, but unhappier with the amount of time and trouble they take. This shift in attitude has meant that debit cards have reached a milestone of being considered in the same league as traditional payment methods with respect to comfort and speed. This is likely to pave the way for an even faster adoption by greater numbers of consumers. The report also found that consumer confusion about which card to use and when and the details behind each transaction have lingered, even as the number of cards has exploded and the number of debit transactions has grown steadily. Consumers’ confusion is justified, the report authors wrote: “Whether the consumer opts to enter the PIN or sign the receipt, they use the same card and the money is debited from the same account. Consumers know nothing of transaction routing, switch fees, and interchange rates-from their perspective, a debit payment is a debit payment.” The report blamed the confusion on the different origins of the two types of transactions, those in which a cardholder validates the transaction with a personal identification number versus those in which a cardholder signs the receipt to validate the transaction. “Depending on which option the consumer selects, the parties involved change-as do the revenue implications for banks, processors, and merchants. Without necessarily realizing it, consumers have two competing payment options on the same piece of plastic,” the report said. This conflict between the types of debit card transaction has continued to leave the consumer at the center of a fight between the merchants who want to cut their transaction costs by having the consumer use their PIN and the merchants who want the consumers to sign the receipt. This conflict has continued even though the gap between the costs of the two types of transactions has narrowed somewhat in the wake of VISA and MasterCard’s landmark settlement with the retailers. But despite the confusion, the growth still rolls on. The report found that between 1998 and 2002, signature debit increased at an annual growth rate of 28%, and PIN-based transactions increased at a rate of 26%. In 2002, debit reached a milestone when consumer and small-business VISA Check cardholders initiated 3.04 billion purchases compared with 2.96 billion purchases initiated with VISA consumer and commercial credit cards. The VISA Check Card now represents over a third of VISA’s total volume. The report released data on a number of different areas which related to the growth in debit transactions. First, while debit cards are trailing credit cards in their penetration (92% of consumers have at least one credit card while only 80% of consumers have a debit card) debit cards are reaching a different market than credit cards. Of the 8% of consumers who lack a credit card, 70% have a debit card. Out of those 70%, almost 90% use their cards at point-of-sale and 28% use their cards seven or more times per week. “Debit cards appear to be filling a need for consumers without credit cards, and are enabling financial institutions to migrate card-based payments to customers who otherwise would not qualify or choose to use them,” report noted. Second, debit card users don’t particularly care whose brand is on their card, the survey found. Of those who do care, the majority prefer VISA, but most debit card users wouldn’t care if VISA, MasterCard, Discover, American Express or some other company’s name were on their card, the report said. Currently the market for card transactions validated by the cardholder’s signature belongs 79% to VISA and 21% to MasterCard, the report also found. Third, while a minority of consumers have a hard and fast preference for one type of transaction over the other, (19% only use a PIN, 14% only sign), 49% of cardholders indicate they use both methods. However, even among the cardholders that do both, there are preferences with most, including half of the cardholders who use their cards seven or more times per week preferring to use a PIN. Ease of use and security were the top three reasons cited by cardholders preferring to use PINs, while security, avoiding bank fees and an inability to remember a PIN were listed among consumers who preferred to sign for the debit transactions. -

dmorrison@cutimes.com