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Debit card spending has remained steady despite the sour economy, but a prolonged recession may affect the value of consumer purchases, industry analysts predict.
Debit card penetration is 75% to 80% [of consumers in the United States], so you're seeing a lot of debit cards essentially being tucked away because if individuals are not earning, they are not going to be spending," William H. McCracken, CEO of Atlanta-based Synergistics Research Inc., tells ATM&Debit News.
According to the latest statistics from the U.S. Department of Labor, the unemployment rate in December rose from to 7.2% from 6.7% in November as 524,000 consumers lost their jobs.
In 2007, the average unemployment rate was 4.6%. The average national unemployment rate last reached 7% in 1992, when it was 7.5%.
Based on Visa's and MasterCard's latest year-over-year U.S. debit card data, the struggling economy had no affect on sales volume and transaction activity.
For MasterCard, debit volume totaled $232 billion for the nine months ended Sept. 30, up 18.3% from $196 billion the previous year.
Visa's latest data shows debit volume reached $280 billion for the three months ended June 30, up 12.7% from $248 billion for the same period in 2007.
Growing Evidence Elsewhere
Overseas, the economy already is having an affect on the value of debit card transactions.
The average debit and credit card transaction processed in December by United Kingdom-based Barclaycard Payment Acceptance was 47.98 UK pounds (US$71.20), down 1.3% from 48.61 pounds in December 2007, Barclays PLC announced Monday.
Despite the drop in the average value of card transactions, the volume of processed transactions increased 4.7% in December from the same month a year earlier, though Barclaycard did not release specific figures.
MasterCard Worldwide declined to comment about the effect the economy is having on its debit card programs. However, Visa Inc. officials expressed confidence that nondiscretionary spending on its debit cards is less susceptible than credit card spend to economic fluctuations and continues to grow despite the recession. Debit represents 53% of Visa's payments transaction worldwide.
While sales volume and the number of transactions are important, Visa is more concerned with "driving more transactions through our network by increasing the use and acceptance of our products and services," says Stacey Pinkerd, head of Visa's global debit products.
Visa earns much of its revenue switching card transactions.
"In that sense, it is more valuable than [transaction value] to Visa when consumers use our products more often, especially over other forms of payment like cash or checks," Pinkerd said in an e-mail message.
Despite the economic turmoil, Visa continues to focus on strategies that would affect its debit and prepaid card portfolios, Pinkerd says.
In December, for example, Visa announced a joint processing venture with Singapore-based Yalamanchili Software Exports Ltd. that enables it to process debit transactions for clients outside the U.S.
"We are continuing to do what we can to advance Visa's overall business in these trying times," Pinkerd says.
Visa and MasterCard make such deals to be ready for when the economy improves, possibly in the last six months of 2009 or early 2010, notes Les E. Riedl, president and CEO of Alpharetta, Ga.-based Speer & Associates Inc.
At the end of 2007 and at beginning of 2008 "no one really knew for sure what kind of trajectory this economy had and where the bottom was going to be," he says. "That's known a little bit better now, and [Visa and MasterCard] can see where the turnaround is going to begin to occur."
Consumer Confidence Needed
Ultimately, consumer confidence will dictate when the economy starts to recover, and President-elect Barack Obama's proposed $775 billion economic stimulus plan may be a factor, McCracken says.
While this plan involves tax cuts for consumers instead of stimulus checks, it may help consumers believe the economy is starting to turn a corner.
"I believe then the consumer will start using their credit and debit cards more and spending freely," McCracken says. ATM
