Debit, Credit Cards Slug It out for Point of Sale Dominance
Barthel, Matt, American Banker
As checks and cash gradually give way to card-based consumer payments, supermarkets, gas stations, and department stores are emerging as testing grounds for the coexistence of credit and debit.
In the perfect world that would satisfy all interests, credit and debit cards would grow to complement each other. Debit cards would be used for small-dollar transactions customarily paid with cash, and credit cards would handle purchases of more than, say, $30.
But competition could just as easily arise. With the two payment options converging in many merchant locations, consumers may begin favoring one type of payment over the other.
While some organizations, such as the card associations, can benefit from the success of either payment option, others, such as credit processors and regional electronic banking networks, have a vested interest in seeing one or the other dominate.
Many people in the point of sale industry are watching the emerging merchant battlegrounds for clues as to how the payment options will play out.
"I think that debit can replace cash and checks," said Dale Dooley, president of ITS Inc.. which is based in Johnston, Iowa, and operates the Shazam payment network.
But debit cards "also can eat into transactions from the upscale type of users who until now have been using the credit card as a convenience card and then writing one check at the end of the month," Mr. Dooley said.
In department stores and gas stations - where credit has a strong beachhead - such a scenario has already begun to unfold.
Payment Systems Inc., a research firm based in Tampa, Fla., has found that as debit cards are more widely accepted, they displace a significant portion of credit card usage.
PSI data show that 29% of the dollars from debit transactions at gas stations and 30% at department stores in 1993 were previously handled by some type of credit card.
Though cash and checks were more profoundly affected by the advent of the debit card at these retailers, experts said the credit card dollar displacement was nonetheless noteworthy.
Whether debit will continue to progress at credit's expense at these merchants-is still an open question, observers said.
Some observers believe the ratio of credit to debit transactions will soon level off at gas stations and department stores, even as both payment options become more popular.
The way debit will affect credit "is going to vary by merchant category, and it's going to depend in large part on the consumer's preference in a given situation," said Peter Dunn, partner at Edgar, Dunn and Co., a management consultant based in San Francisco.
"But in the future, I do see [debit and credit] peacefully coexisting."
Though this may prove true in the long run, there are indications that more erosion of credit may be on the way at both department stores and gas stations. …