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Debit Card Use on the Rise
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Joe Potente
The Kenosha News
October 22, 2009
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Consumers nationally and locally are increasingly swapping one form of plastic for another. Debit card use remains on the rise, while credit cards are making fewer swipes through store registers, observers say. Visa earlier this year announced that in 2008, for the first time ever, its debit payment volume exceeded its credit volume, The Washington Post reported recently. Local bankers said some of the decline in credit card use is likely a function of today's shaky economy, while a rise in debit transactions points to a generational shift in how people bank. Tony Baumgardt, vice president for enterprise payments at Racine-based Johnson Bank, said his institution's experience mirrors the national trend. As people have become more cautious about their spending, debit allows you to draw from the money you already have, rather than the money you don't have, Baumgardt said. "You're staying within your means, which is what we hear everybody talking about these days," Baumgardt said. About that overall change in banking habits, it's simple, said Gregg Pfarr, senior vice president at Kenosha-based Southport Bank. "The younger generation has gone plastic," Pfarr said. "Ironically, we have a high percentage of customers who do not even write checks these days. They simply use their debit cards." And that plastic does tend to be of the debit variety, rather than credit. Revolving credit dropped by $6.1 billion in July, the Federal Reserve reported. Pfarr said he believes a factor of that may be that many credit card companies have curtailed credit limits or even canceled accounts in recent months. "As people need plastic to function in some places, your choices may have been reduced," he said. Unlike credit cards, which assign a line of credit and issue monthly bills, debit card transactions immediately withdraw funds from the user's checking account. Trish Preston, head of U.S. debit for MasterCard, told The Washington Post the changing fortunes of debit and credit illustrate how recession has affected consumer spending. "Think about what's happening in the economy," Preston said. "Appliances, furniture, jewelry: Those are very sensitive to the economy, and those have generally been credit spending categories." Debit cards, she noted, have been typically used for necessities such as groceries and gasoline expenditures people must continue making, in spite of the economy. From the merchant's perspective, debit is preferable to credit. Card issuers charge a small, flat, per-transaction fee for debit transactions, unlike credit transactions that nick retailers for a percentage fee that varies based on the business' transaction volumes. In many cases, debit card users are given the choice to select between making a debit or a credit transaction with their card. Lewis Aceto, owner of SJ Crystals Men's Shop, 5701 Sixth Aye., said he is seeing much mbre of the debit card, which is fine by him. That comes, he said, as plastic is behind a vast number of his sales. "There's less and less cash used every day," Aceto said. "There's many days where there's no cash transactions that go through this store." Credit vs. Debit When you swipe your debit card at the grocery store, you often have the choice of selecting credit or debit. What's the difference When you choose debit: ils I You are asked to provide a personal identification number An online transaction occurs that immediately withdraws the corresponding amount from your bank account The merchant pays a small, flat fee for the transaction When vou choose credit: You are asked to provide a signature, rather than a personal identification number The transaction is handled offline, through the same channels as a credit card transaction. The amount is eventually withdrawn from your bank account, but not immediately. The merchant pays a larger, percentage-based fee for the transaction. Percentages vary, depending on the merchant's transaction volume. Which is better By removing the money from your account immediately, debit allows you a clearer, minute-by-minute picture of your account balance. The signature requirement adds an element of security to a credit transaction, Merchants typically prefer debit, because of the relative cost, but it is largely a wash for the consumer. KENOSHA NEWS Source
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