Consumer use of payment cards is very much in flux, and contradictory trends are making it hard for issuers to react.
While the recession drove consumers to begin favoring debit cards over credit cards to manage cash-flow, in 2011 consumers shifted somewhat more of their total spending to credit cards from debit cards, according to a report MasterCard (MA) released Thursday.
But the card-spending shift went both ways. Consumers last year shifted $3.7 billion in spending from debit cards to credit cards, while $2.6 billion in spending also shifted to debit cards from credit cards, Prasad Iyer, a MasterCard vice president, writes in "Smarter Spending and Savings: Evolution In U.S. Consumer Behavior."
The shift back toward credit card spending may be due to the effects of the Durbin amendment to the Dodd-Frank rule, which prompted the Fed to cut debit interchange rates beginning in October 2011 and caused many financial institutions to pare down or eliminate debit card rewards, Iyer suggests.
"A sizeable enough portion of consumers responded to the disappearance of some debit card reward programs by using their debit cards less," he says.
But such a hairpin turn in consumer behavior seems unlikely to account fully for the move back toward credit.
"The back-and-forth movement between credit and debit means that cannibalization of credit by debit should be even less of a concern for issuers than it has been in previous years," Iyer notes. "Instead, the two-way flow should be viewed as an opportunity" for issuers to develop products based on consumers' increasingly complex needs.
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