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Visa Inc.'s recent debit card sales-volume milestone not only illustrates the lock Visa has on U.S. debit market share, but it also shows again that consumers are shifting from using credit cards to debit cards to control spending.
And while Visa charges ahead with its plans to retain control of the debit market, MasterCard Worldwide, which for decades has struggled to gain much ground, is attempting to differentiate itself in other ways.
Both companies noted significant debit card growth in their most-recent public filings. Visa announced that for the first time U.S. debit sales volume ($206 billion) surpassed U.S. credit volume ($203 billion) for the quarter ended Dec. 31, its latest reported period for transactions activity. The debit volume represented a 5.6% increase from $195 billion during the same period in 2007, while the credit total represented a 6.9% decrease from $218 billion.
U.S. debit MasterCard sales volume rose 5.3%, to $79 billion from $75 billion for the quarter ended March 31.
U.S. credit card sales volume during the quarter fell 13.7%, to $113 billion from $131 billion during the same period last year.
Economy Plays A Role
The economy played a part in those numbers, but executives from Visa and MasterCard tell ATM&Debit News the increase in debit card sales volume was inevitable because of consumers' changing payment preferences and by what each company is trying to accomplish.
"We knew that the rate of growth in debit was faster than the rate of growth in credit and a lot of it is because of the displacement of cash and checks," Stacey Pinkerd, Visa head of global debit products, tells ATM&Debit News.
MasterCard is attempting to gain a greater share of the debit market by launching products it contends differentiate itself from the competition.
Last October, MasterCard introduced MasterCard Savings, a merchant-funded debit-rewards program designed to complement issuers' rewards.
Then in March of this year, MasterCard launched a World Debit PayPass contactless card.
The card features MasterCard's Savings Plus rewards program and is designed for consumers who spend $7,500 or more annually using their debit cards.
KeyBank, a wholly owned subsidiary of Cleveland-based KeyCorp, is currently the only financial institution offering the card.
"This is a good example of how we are trying to differentiate ourselves from the competition," Richard G. Lyons Jr., MasterCard group executive, global debit products, tells ATM&Debit News. "There is a lot of evidence that this kind of strategy is working well for new commitments."
MasterCard points to a recent mulit-year contract extension with Fifth Third Bank as an example of its strategy working well.
Lyons also touted MasterCard's recent development of Integrated Processing Solutions, back-end processing software that assists debit card issuers with account creation, customer service and vendor management.
"IPS is an increasingly important part of our conversations with financial institutions and their debit business," Lyons says. "What we pitch to financial institutions is superior technology."
Much of the technology that drives card-issuer processing services and ATM-driving services is based on 20-year-old technology, he adds.
"Obviously, it's been updated and brought current in many ways, but retail banks have changed over the past 20 years," Lyons says.
On the other side of the fence, Visa continued to increase its U.S. debit presence last week when India-based ICICI Bank Ltd. announced it will issue Visa check cards at the bank's New York branch (see story on page 7).
The agreement falls in line with Visa's goal of getting "a Visa debit card in the hands of every one of our partner financial institutions and then into their customers' hands," Pinkerd says.
Visa needs to continually reinforce the benefits of using debit cards to grow debit spend, Pinkerd says.
"We need to continue to push our products as alternatives to cash and checks" in environments such as small-ticket purchases and bill payments, he says. "These sorts of things are really going to help us to continue to move forward," he says.
Negative Credit Card Growth
Though the strength of Visa's share of the U.S. debit card market helped it offset negative credit card growth, some observers say MasterCard's lack of a sizable debit program has hampered its ability to counter reduced credit card activity.
"Unfortunately for MasterCard, it simply doesn't have enough of its debit products in the market to create enough volume to offset the negative growth of its credit card products. (It's) a sharp study in contrasts, as Visa, which dominates the debit card market, posted significantly better earnings (for the same three-month period)," Red Gillen, an analyst for Celent LLC, wrote in an advisory earlier this month.
Still, MasterCard views its U.S. debit share (120 million debit MasterCards to Visa's 333 million check cards) as a "pretty good franchise," Lyons says.
"Maximizing that franchise and maximizing the performance of those cards for our important [bank] customers is probably our best strategy," Lyons says. "If we're outperforming the industry, gaining share will take care of itself over time."
More Reasons For Growth
Both Lyons and Pinkerd agree the economy was not the sole reason why their debit card activity increased.
Consumers are "writing fewer checks, using cash less often, changing some payment behavior from credit to debit and want better transaction tracking," Lyons says.
Indeed, American consumers are changing their spending habits because of the recession, according to a recent survey from Mintel Comperemedia.
The survey found that 43% of respondents were using debit cards more than credit cards, while 22% were relying on both card types as they reduced spending. Mintel surveyed 1,500 adults online in March.
Consumers using debit cards more than credit cards is a trend that should continue, says Susan Menke, Mintel financial services analyst.
"Debit has been overtaking credit for a number of years now, and there was some conjecture that it would level off," she says. "But because of the recession, it's become a whole new ball game."
Banks See The Trend
Financial institutions recognize the trend, and the number of credit card-acquisition mail offers dropped 48.6%, to 458.2 million in the first quarter of this year from 891.3 million in the fourth quarter of 2008.
On the other hand, debit card-acquisition mail offers jumped to 5.1 million during the quarter from 2.6 million in the fourth quarter of 2008, according to Mintel.
