This year, for the first time, debit cards may be used more often than credit cards in this country.
Five years ago U.S. consumers were scarcely aware of debit cards; now 38% consider them the best way to pay for everyday expenses, the Edgar, Dunn & Co. consulting firm says.
This explosive growth means opportunities to increase demand deposit accounts and revenue - but most financial institutions have barely scratched the surface. A significant revenue opportunity lies in closing the gap between debit and credit card ownership and in getting those who have debit cards to use them more often.
Eighty-nine percent of consumers with a checking account also have a credit card, but only 83% have such a debit card, according to a recent American Bankers Association/Dove Consulting report. Moreover, only 68% of those with a debit card use it - and most of them for just one to six purchases a week.
MasterCard estimates that increases of 5% in debit account activation and transactions per debit cardholder would mean double-digit revenue growth for a typical financial institution. It's hard to imagine a simpler single-focused revenue strategy.
But achieving such increases requires customer segmentation that goes beyond age and income. Analysis of payment transactions can help.
Payments provide a constant connection to the customer. Payments are made every day; branch visits are not.
Debit cards can therefore give banks an edge over nonbanks in knowledge of customer behavior. Issuers can analyze transactions to learn how and why people make debit payments. That knowledge can help them acquire and serve customers and encourage them to use debit cards more.
TWO KEY MARKETS
Women and the "mass affluent" - households with annual income over $100,000 - hold the most potential for financial institutions to increase their debit revenue.
Debit growth is fastest among women, who already constitute nearly two thirds of all users and the majority of intensive users. Women prefer debit cards to cash 33% to 30%, while men favor cash 44% to 29%, according to the ABA/Dove survey.
Women cited "control" and "convenience" as key benefits. The new contactless "tap and go" debit cards like the MasterCard PayPass card play to the preference for convenience. PayPass can save hours a year at the checkout counter.
Mass affluent. By 2010 more than 20 million households, with combined income of nearly $3.5 trillion, are expected to be in this segment, which already accounts for a quarter of U.S. consumer spending.
These people want things their way. Beyond convenience and flexibility, they demand choice and solutions tailored to their wants and needs. Debit's flexibility, which makes it ideal for customizing reward programs, is perfect for meeting the preferences of these customers.
Understanding consumer payment preferences and usage patterns can help banks revitalize DDA relationships and provide compelling reasons for their customers to use debit more often and cash and checks even less.
