Convenient though it is for the consumer, and strategic as it is for the issuer, the debit card has had a slower adoption rate in many mature payments markets than might be expected.

Many consumers have come to value their convenience, as well as their usefulness in helping them manage their spending.  Issuers find debit cards to be an important tool to achieve cost savings over alternate payment methods and a way to drive additional revenue. The growing popularity of electronic commerce has also helped make debit cards more visible. But markets don’t necessarily move in tandem with each other, and there have been pockets of resistance. So what might be the keys to broader, more regular and consistent debit card use by  consumers? 

MasterCard Advisors undertook an extensive study of debit card usage in a mature Western European market. This involved both an analysis of current account and current account transaction data over a 24-month period, with consumer research combined with market insights.

The research uncovered a variety of insights. Surprisingly, an increase in the use of debit cards as payment does not lead to a decrease in the use of cash; in fact we found that the broader a consumer’s use of debit at the point of sale, the greater the average monthly ATM transactions he or she has. Further, we found that it is much more important to look at the range of merchant categories in which a cardholder is comfortable using a debit card than at the total volume of transactions. A consumer whose debit purchases are limited to a few core spending areas is still not thinking of the card as an equivalent to cash, let alone a replacement for it.

By looking at the range of spending categories, we were able to identify five distinct stages of debit usage.  The earliest stage, or what might be called "Step 0," refers to those consumers who use their debit cards only for ATM withdrawals. While they might not express it this way, they have an emotional attachment to cash and see no reason to change a behavior pattern they have maintained for years.

In Step 1, the customer is still tied strongly to cash, but has broken the "usage barrier" either because of an emergency, for a planned one-off large purchase, or out of necessity.  "Necessity" refers to those payments that could not be made by another method, such as transactions by phone or over the Internet. Our research found that such "necessity payments" are perhaps the single most critical trigger for first-time debit card purchase.

Step 2 includes consumers who still prefer the immediacy of cash, but have now used their debit card for a few of the Step 1 purchases: planned one-offs, emergencies, or Internet transactions.

Step 3 customers have begun building toward regular use of debit cards in a number of core categories, such as grocery, fuel, and clothing, making on average nine debit purchases a month. While they still use cash on an everyday basis, they have come to see how a debit card can be an important money management tool.  We have found that the move to Step 3 is the most significant of the transitions, not only because it is here where the most dramatic growth in debit spending occurs, but because it reflects the greatest change in consumer attitude toward debit.

By Step 4 regular debit usage has been adopted, and customers are making purchases in 11 to 20 different merchant categories, moving beyond the core categories of grocery, fuel, etc., to recreation, personal care and other discretionary categories. These debit users may still need reassurance in unfamiliar surroundings, especially when travelling abroad, and may look for visible signs of merchant acceptance. However, they are no longer compartmentalizing their payment preferences by merchant, e.g. using cash for fast-food, transport and other low-value purchases. 

By Step 5, cardholders want to use their debit card whenever and wherever possible. They typically carry very little cash (if any) and may actually become frustrated when merchants do not accept debit.

As banks look to drive change in their customers’ behavior, they need to understand the particular needs and understandings that manifest at each stage. In the earlier stages, cash is seen as a means of control because of its immediacy, while at the later stages the ability of debit to track spending is recognized and valued.  By introducing early-stage customers to this aspect of debit, banks can instruct their customers’ money-management systems and effectively address their needs and concerns. 

ATMs remain an integral part of consumers’ lives at all stages, so they should be seen as a prime means for issuers to communicate messages about the benefits that cardholders derive from debit card usage. At the ATM screen, issuers have a captive audience and can raise the user’s awareness of debit acceptance – namely that debit cards can be used wherever credit cards are accepted; of the security features and loyalty benefits of using debit; and as a way of managing their money.  

By understanding the category preferences of debit card usage, issuers can better put in place programs that encourage use of debit in other categories. The identification of certain core areas, such as fuel, groceries, and clothing as "gateway categories" should provide a map for issuers looking to encourage debit cardholders who never or rarely use this facility, to avail themselves of it.

Ben Colvin is the group head of MasterCard Advisors’ Global Debit and Prepaid Knowledge Center. He can be reached at