Debit Spending Online Gains Steam

  A showdown between credit and debit card use for Web-based shopping is under way. A March study by JupiterResearch found that a growing percentage of consumers are opting to use debit cards instead of credit cards online.
  The research suggests online shoppers want more control over their spending. JupiterResearch also predicts debit transaction volume will surpass credit activity online next year, and researchers there say institutions that see the value of both debit and credit card use will adjust better than those that do not.
  To many consumers, debit cards provide better control over budgets than do delayed-payment credit cards. Moreover, more consumers are shedding security concerns about using debit cards online.
  And as more issuers nurture their customer relationships, often through total-banking rewards programs, the credit card's popular points-for-purchase feature could become less of a differentiator.
  Visa already has experienced the shift from credit to debit card use online. In February, 54% of Visa's U.S. e-commerce transactions were initiated with debit cards, up from 52% in January.
  MasterCard expects debit to surpass credit card use next year as the most used form of MasterCard plastic online.
  JupiterResearch predicts that 42% of overall 2007 U.S. e-commerce transactions will be initiated with debit cards versus 39% with credit cards. By 2010, the research company says, 46% of online purchases will be initiated with debit cards versus 35% with credit cards.
  Credit is losing its fan base in favor of spending control and tracking, experts say. In fact, 51% of online buyers queried for the March Jupiter-Research study preferred debit for spend tracking; 40% choose credit cards. Moreover, 45% said debit cards are better for controlling spending, while just 14% said credit cards work better for budgeting.
  Everyday purchases have been the bread and butter of debit. But as more consumers realize debit cards are as protected against fraud as credit cards because MasterCard and Visa issuers offer zero-liability protection for both card types, they will become more comfortable using them to buy online, observers say.
  "Part of the increase we see in debit card transactions is more consumer awareness and understanding of the card," says Mike Marzec, senior vice president and manager of electronic delivery at First Tennessee Bank in Memphis, a Visa check card issuer.
  First Tennessee also makes big marketing noise about the zero-liability guarantee for debit card transactions. "It's something we proactively mention in mailings and on our Web site," Marzec says.
  The convenience of debit coincides nicely with the convenience of e-retailing. "Consumers are moving their transactions from brick and mortar to the e-commerce world, where 90% of transactions use a [debit or credit] card," says Stacey Pinkerd, Visa senior vice president.
  Edward Kountz, lead analyst at JupiterResearch, says the virtual retail space syncs well with trends in brick-and-mortar stores. "Debit is top of wallet offline, and it's shooting over to online," he says. "The online habit is in hand."
  Debit use online is especially prevalent for low-value transactions, says Kountz. His research shows that more than twice as many consumers use debit cards for online transactions under $50 as use credit cards.
  Trish Preston, MasterCard group head of debit product management in the Americas, says she even buys her groceries over the Internet with her debit card. "Consumers still use credit cards for some purchases and debit cards for others. That will remain," she says.
  But some demographic groups are showing a predilection for debit these days, including women, the affluent and recent college graduates, Preston says.
  MasterCard devised a promotion that prods consumers to nibble away at their credit habits with debit instead. MasterCard registered every springtime debit MasterCard purchase (click and brick and mortar) into a contest. Three winners were to be selected this month to win $1,000 of debit purchases per month for the next 10 years. "They can use this money to manage the expenses they have every day but also to reward themselves," Preston suggests.
  Despite research showing debit cards are assuming a greater percentage of online purchases, Pinkerd contends debit is not displacing credit card usage. "That continues to grow as well," he says.
  However, Kountz cautions issuers to monitor debit's growth at the expense of credit activity. He says savvy industry watchers recognize that debit will eat into traditional credit card transactions.
  The shift to debit from credit may be a threat to some credit card issuers, Kountz says. But because more banks issue both card types "they are better positioned to ride the wave than they were before," he says.
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