That Shrinking Feeling

  The payments pendulum has been swinging debit's way for quite some time now, but recent numbers show just how much debit is a growth industry and credit is, to be kind, "mature."
  According to the Federal Reserve, consumer revolving credit contracted at a seasonally adjusted annualized rate of 14% in December, the biggest contraction in recent memory. The month ended with $711.2 billion in outstandings, down 1.2% from November's revised figure of $719.6 billion.
  True, it was a bust of a holiday season for retailers, but to think that revolving credit shrank at a double-digit rate in December of all months is ... unthinkable.
  For all of last year, revolving credit grew only 1.6% from the $699.9 billion in seasonally adjusted outstandings at the end of 2001. Revolving credit grew by 5% and 11.5% in 2001 and 2000, respectively. And oh for the days of the mid-1990s, when revolving credit racked up some annual increases of 20% or more.
  Credit card issuers can take a wee bit of comfort in the fact that the Fed frequently revises its numbers. In early January, for instance, the central bank said revolving credit shrank slightly during November, but in February the Fed revised the November figure to a 2.8% annualized gain. It's going to be hard to revise December's 14% decline into positive territory, however.
  Things are much more robust over on the debit side of the industry. As our cover story beginning on page 38 documents, personal identification number-based (online) debit card transactions grew an estimated 39% last year and signature-based (offline) debit transactions grew by more than 24%. Visa U.S.A. reports that signature debit card transactions exceeded its credit card transactions for the first time last year.
  Why the growth? Merchants like PIN debit because it's the cheapest kind of major payment card to accept, and the most secure. Consumers increasingly agree that it's just a whole lot easier, and fairly safe, to whip out either a PIN or signature debit card in the store rather than writing a check. They don't care about the loss of a few weeks of float on small transactions.
  True, debit has its problems. People get confused about the combined signature-based and PIN-based functionality on most U.S. debit cards. I once put a grocery store clerk on tilt when I said "debit" while trying to sign for a Visa card transaction. She had no idea a Visa card could be anything but a credit card.
  Then there's the big trial that's supposed to start next month pitting the nation's retailers against Visa and MasterCard over the associations' "honor-all-cards" rules. No word of a settlement at this writing. But I suspect that no matter what the outcome, debit will continue its rapid growth as financial institutions put more marketing resources behind debit and more merchants add and promote debit card acceptance.
  While much of the world believes the U.S. marches only to its own tune, especially when the subject is Iraq, Americans are falling more into line with other industrialized nations where the debit card is the preferred payment card.