American Consumers Prefer To Use Debit Card Instead Of Credit, Credit Card Usage Hits All-Time Low

According to Javelin Strategy & Research, consumers in the US prefer to use their debit card instead of the traditional credit card to avoid building up more credit debt. In addition, US Federal Reserve announced that credit card use by most American consumers dropped for the sixth consecutive month in July, with average consumer debt falling by $3.6 billion or 1.75%.

Both kinds of “plastic” allow users to make purchases safely and conveniently without having to carry cash. However, the main difference is that spending using a credit card is a form borrowing while with a debit card you are spending your own funds that you deposited to your card’s account.

At Visa, the world’s leader payment network, the total payment volume for debit cards surged by 7.9% in 2009 to $883 billion as credit-card volume dropped by 7.3% to $764 billion. Volume for debit cards at No. 2 MasterCard rose by 5.8% and 2.8% at No. 4, Discover Financial Services, according to Bloomberg.

James Van Dyke, President and Founder of Javelin Strategy & Research, said:

“Consumers are turning from one form of plastic to another. Credit cards are falling out of favor as cardholders become more cautious and look for more conservative payment methods.”

Key Findings of the Javelin Strategy & Research Report titled “Payment Card Issuer Strategies 2010: The Rise of the ‘Cautious Consumer’” are the following:

• Among the 11% of consumers who claim they have an increased ability to put funds into savings, 46% have decreased the use of their credit cards, and 51% have decreased their spending on discretionary goods, such as entertainment, travel, luxury items and cars.
• Credit card use among consumers decreased 31% between 2007 and 2009 (87% in 2007 down to 56% in 2009); if this rate of decline continues through year end, credit card use will fall below 50%.
• The top two most populous states, California and Texas — representing almost 20% of the U.S. population — are among those in which credit card use has declined as the collapse of the housing market and rising unemployment rates have contributed to increasingly cautious consumer behavior.
• Fee sensitivity is paramount in the selection of a new card issuer, as 80% of consumers cited “no annual fee” as the most important criterion when choosing a new credit card.

Beth Robertson, Javelin Strategy & Research Director of Payments Research, said the recent passage of widespread financial reform targeting payment cards is not just impacting the way consumers behave, but is transforming the entire payments landscape.

“In addition to reassessing their entire debit and credit card portfolios and opportunities for prepaid adoption, the industry now has an imperative to innovate, finding new payments options or structural alternatives that will drive revenue,” Robertson added.

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