Debit Cards Seen as No Threat to Credit Card Revenues

By Reosti, John | American Banker, June 29, 2000 | Go to article overview

Debit Cards Seen as No Threat to Credit Card Revenues


Reosti, John, American Banker


Warren G. Heller knows plastic. Without resorting to notes, Mr. Heller, research director at Veribanc Inc., a Wakefield, Mass., bank rating service, can say how much bad debt credit-card issuers charged off in 1999 $9.5 billion. He has a more difficult time figuring out why anyone would use a debit card instead of a credit card. "What is in it for the user?" Mr. Heller asked. "They are losing the 'float,'" that makes credit cards attractive. Experts like Mr. Heller may scratch their heads, wondering why people use them, but they do not dispute that the debit card's popularity is growing. Increasingly, Americans are pulling out this credit card look-alike instead of paying cash or writing checks, and with systems being developed to let consumers use them for Internet purchases, the slant toward debit cards seems likely to intensify. A national survey conducted by the Atlanta-based Synergistics Research Corp. in December suggested that people use credit cards and debit cards almost as often as checks when making purchases. The survey found that debit cards were used for 17% of purchases, and checks 27%. Those numbers track with a recent Gallup Poll commissioned by Visa U.S.A., which indicated that 58% of Visa's debit-card holders wrote fewer checks and 40% used cash less frequently. How far will the trend go? Ruth Ann Marshall, the president of MasterCard International's North American region, predicted in March that by 2005, the number of MasterCard's debit-card transactions would outpace credit-card use. Visa is even more ambitious. It wants debit cards to account for 10% of consumer payment volume by 2001, said Tracy Connelly, vice president of deposit access products. With the rush to debit cards on the verge of turning into a stampede, some in bank circles have expressed concern. After all, credit-card transactions generate more revenue for banks than debit card use. Bankers who are unversed in the intricacies of debit cards frequently worry they will cut into their credit card revenues, said Scott Broughton, director of marketing for ICBA Bancard, the Independent Community Bankers of America's bank card subsidiary. "Bankers commonly ask that question," Mr. Broughton said. "With a debit card, am I going to give up all the money I am making with credit cards? Really, the answer is no.'' Mr. Broughton, along with some banking analysts, encourages banks to offer debit cards to as many customers as possible. Rather than replacing credit cards, he said, debit cards frequently take the place of cash or paper checks, and that, experts agree, is good for banks. "People need to be encouraged not to use checks," said Michael Weil, an analyst with PSI Global in Tampa, Fla. "Paper checks are expensive for banks to play with." Both Mr. Broughton and Mr. Weil said the increase in debit card payments has not triggered a reduction in the volume of credit-card payments. "We are not seeing much cannibalization," said Mr. Weil. "People use debit cards where they were likely to pay cash or write a check." Americans write a lot of checks, as many as 68 billion, according to the Federal Reserve's rough estimate, but the number of checks is growing by only 1% or 2% annually.

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Debit Cards Seen as No Threat to Credit Card Revenues
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