A recent study from global payment processor
First Data shows that debit card payments continue to rise in
popularity in the US, with cardholders making more use of both PIN
and signature transactions as opposed to just one method. As
Charles Davis reports, debit still has potential for
further growth.
The meteoric rise of the debit card at the
point of sale in the US continues. Transactions by cardholders able
to utilise both PIN-based and signature-based debit now outnumber
the transactions of those wedded to one form or the other,
according to First Data’s 2007/2008 Consumer Payments Usage &
Segmentation Study.
Cardholders using both methods completed 23.3
transactions during the previous month, while PIN-only users
completed 12.2 transactions and signature-only users completed 17
transactions, according to the study. Some 54 percent of
respondents picked PIN as their primary method, and 38 percent
chose signature-based debit. Of those who prefer PIN, 44 percent
feel the method is more secure, while 39 percent of those who
prefer signature feel it is more secure.

More usage at the POS

The study – a national look at the payment methods of US consumers
– found that 74 percent of respondents had used their debit card at
the point of sale in the previous 30 days, an increase from 70
percent of respondents in 2006 and 62 percent in 2005.
Colorado-based First Data conducted phone interviews with 3,500
adults in November and December 2006 and between October and
December 2007 for the study.

The study also found that debit still has
plenty of room to grow, as US consumers stubbornly cling to paper
cheques despite the industry’s tireless efforts to eradicate them.
In the 30 days before the survey, 57 percent of respondents paid
for merchandise with a cheque, and 92 percent paid for goods with
cash, according to the study.
The study found that debit usage is gaining
ground across all transaction dollar amounts. The preferred method
of payment depends on the dollar amount of the goods or services
acquired. This pattern is largely unchanged from 2006; however, the
degree of usage of one payment method over another is gradually
Cash dominates for payment amounts of up to $10
but sharply declines in the $10-$25 range, giving way to debit.
Debit becomes the preferred payment method over cash at a slightly
lower price point than in 2006. At the $50 or more price point,
debit now leads.
However, in 2007, the gap between debit and
credit is wider than in 2006. This implies that debit is capturing
payment preference at the expense of credit. As such, debit usage
appears to primarily be eroding share from cash below a $25 spend
and from cheques and partly credit cards above a $25 spend.
As impossible as it may seem, 18 percent of
respondents did not currently own a debit card, and among them,
three in four had never owned an ATM/debit card. Non-owners cite
“lack of need” as their primary reason for non-ownership.
Overall though, ATM/debit card penetration
rebounded in 2007 (up to 82 percent) with gains across all age and
income groups. Among consumers aged 18-42 years, penetration is
almost universal at 90 percent ownership. Though penetration among
the older segment (61+ years) has lagged, the largest gains (33
percent growth over 2006) have been realised with this group,
demonstrating a wider migration from traditional payment methods
historically preferred by this segment.
As such, the ATM/debit card ownership gap
between younger consumers and those aged 61 and over has narrowed
significantly. The frequency of using an ATM/debit card rises as
more consumers report using the card in the past 30 days. Of
particular note is the significant increase (63 percent, up from 52
percent) in past 30-day card use by the older segment. In general,
the reported number of times an ATM/debit card is used in the past
30 days continues to inch upward, mostly driven by POS use, and is
slowly approaching usage level of once a day.
As expected, the study also found that
resistance to using a debit card at the point of sale is eroding.
Past 30-day ATM/debit use at the point of sale continues to
increase – a trend since 2005. Usage is most prominent among
cardholders under age 42, though gains are also noted among the
older segments reinforcing that debit cards are more widely
accepted. Drivers of debit card POS use are fraud
protection/limited liability, ease of use and security

Cashback an important feature

Once thought to be a major driver of point of sale debit, the
cashback feature continues to be moderately important. Frequency of
cashback trends have been flat for a number of years and may now be
considered a standard additional feature versus a differentiating
value proposition. The study found that the cashback option is most
frequently used by those aged 25-60. The amount of cashback
typically received hovers around $20, similar to 2006.

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Debit POS use – regardless of PIN or signature
debit – continues to be most prominent in grocery stores followed
by gas stations. In both locations, PIN debit has a higher level of
use than signature debit.
Signature debit, on the other hand, is more
likely than PIN debit to be used in dine-in restaurants. For both
card types, usage in department stores and specialty retail stores
appears to decline. This may be impacted by merchant promotion of
store-specific credit cards or gift cards.
The study found that on the whole, US consumers
tend to rely on multiple forms of payment rather than relying on or
preferring solely one payment type. Generally those who own ATM
cards also use cash and credit cards and, to a lesser extent, pay
with cheque. Clear distinctions exist for the type of payment
method and nature of transaction, confirming the relevance of each
payment type for carrying out specific transactions.
However, while consumers display some common
behaviours clear distinctions on consumer characteristics exist
across the market. The two segments of PIN debit and signature
debit comprised a larger share of the marketplace in 2007 than in
2006, which the study attributed to consumers gaining more
familiarity with electronic payment methods, prolific accessibility
to debit cards, and attraction toward the speed, convenience and
protection offered from debit cards relative to traditional payment
methods, such as cheques.
The PIN debit segment records the highest
growth of all and is now almost equal in size to the cash segment,
which also posted an increase, though marginal.