Debit or Credit? Consumers Face Conflicting Messages About Payment Choice

Jan 24, 2012

Debit or Credit? Consumers Face Conflicting Messages About Payment Choice

Javelin’s 2011 Consumer Payments Behavior Report Examines How Financial Institutions Lost the Initial Public Relations Battle Related to the Durbin Amendment

San Francisco, CA, January 24, 2012Javelin Strategy & Research’s latest report examines how recent debit card regulations have transformed market incentives for payments, creating a confusing environment for consumers. For years, banks and merchants have actively encouraged debit card use, and 73% of consumers report that they are satisfied with the debit card option. Now, debit card issuers are facing a combined $12.2 billion loss due to revenue-pinching regulations. On the one hand, many FIs are reacting by steering consumers toward more profitable credit cards. On the other hand, most merchants will benefit from Durbin-driven reductions in interchange fees and are encouraging debit card use. However, small-ticket merchants have seen their costs for debit acceptance rise significantly, and these merchants often encourage the use of cash or other payment options rather than more costly debit cards. As a result, consumers are facing a bewildering onslaught of mixed messages about which payment option to use.

FIs especially took a big public relations hit in the last quarter of 2011 when they lost the opportunity to educate their customers about these new regulations, then attempted to impose measures that consumers felt were punitive. As a result, 70% of consumers believe that recent debit card regulations will actually benefit banks, whereas only 30% believe that the regulations will benefit merchants.

“Consumers love their debit cards, but the majority would choose different payment options if they were charged a fee for using debit,” said Beth Robertson, Director of Payments Research at Javelin. “Our data shows that if FIs implemented debit card fees, 32% of consumers would choose cash as their payment option, 25% would pay with a credit card and 26% would switch to another bank that didn’t charge for debit cards. Banks should improve their messaging and educate consumers about new regulations so consumers can understand the effects of their payments choices.”

“The full effects of Durbin remain to be seen,” said James Van Dyke, President of Javelin. “The recession led many people to turn away from credit cards in favor of debit and prepaid cards as ways to control debt, but this trend seems to be slowing as the economy stabilizes. Today, there are more conflicting pressures on payment choice than ever before. Stakeholders should monitor payment trends and identify profitable ways to influence the payments mix.”

Javelin’s report Evolution in Consumer Payments Behavior: How the Durbin Amendment and the Economy Are Driving Payment Change based on survey data collected from more than 3,200 consumers, examines consumers’ attitudes toward various payment options and scenarios. The report outlines the specific strategies FIs, merchants and payments providers should use to navigate the changing environment and provide consumers with the information they need to make informed payments decisions.

Selected Key Findings from Evolution in Consumer Payments Behavior:

  • Cash is the most regularly used payment option: 79% of consumers report that they had made cash purchase within the past seven days.
  • 90% of consumers claim they would require a discount of 3% or more to switch to another payment option.
  • 72% of underbanked consumers indicate that they most frequently use cash for any type of purchase. Just 6% of these consumers use prepaid cards most frequently.

For additional details or to purchase Javelin’s report, Evolution in Consumer Payments Behavior: How the Durbin Amendment and the Economy Are Driving Payment Change, click HERE.

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About Javelin Strategy & Research:

Javelin Strategy & Research is the leading provider of quantitative and qualitative research focused on the global financial services industry. Our extensive quantitative data and deep analyst experience enable us to forecast the direction of the financial services market and make recommendations that empower you and your business to succeed.

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