Consumers between the ages of 18 and 34 are driving up debit card use to control spending, though older Baby Boomers continue to rely on credit cards for most purchases, new research suggests.
Auriemma Consulting Group conducted the research through an online survey of credit and debit cardholders in December. The survey started with 919 respondents, but almost one-third (288) lacked a general-purpose credit card. Of the remaining 631 cardholders, 20% said their debit card supported ATM access only. Auriemma whittled down the eligible respondents to 505 for the survey report.
In a typical month, the youngest respondents used a debit card for 56% of their purchases and a credit card for 29%. Those consumers also were more likely to use PayPal (8%) or a prepaid card (4%) for purchases than were respondents ages 55 and older; only 1% in that age group used a prepaid card while 2% used PayPal, Auriemma says.
Respondents ages 55 and older used a credit card for 48% of their purchases and a debit card for 40%, according to the report.
The survey did not address whether or how younger consumers’ payment preferences might change as they grew older. “When those 30 year olds get to 35 and have a family and mortgage, will they shift to credit, or will they retain this view of the debit card as a” control-spending tool? wondered Patricia Sahm, Auriemma’s managing director of knowledge management practice.
Consumers ages 18 to 34 are particularly important because “that segment will be the core of the economy for the next 20 years,” she said during an interview.
Consumers between the ages of 35 and 54 also prefer debit to pay for 54% of their purchases compared with credit cards for 37%.
Respondents did not show a preference for using a PIN or a signature when conducting debit card purchases.
Regardless of age or education, respondents were split regarding their use of a PIN (51.1%) or a signature (48.9%) when initiating debit card transactions. Only 4% of respondents considered neither PINs nor signatures secure.
Respondents, however, appeared skeptical regarding the safety of contactless card and mobile payments. Some 24% of participants did not view contactless cards as secure, while 26% believed similarly about mobile payments.
Those findings are not an indication consumers would shun those payment vehicles, Sahm believes. A mobile-payments scheme developed by a traditional network has a chance to gain traction with skeptical consumers, she said.
Respondents did not react favorably to questions about annual and monthly checking account and debit card fees. In light of the so-called Durbin amendment to the Dodd-Frank Act regulating debit card interchange fees, many observers speculate banks will start adding annual fees for debit card use.
Asked how they would react if their bank added a $50 annual fee to use a checking account and debit card, 49% of respondents said they immediately would look for another bank with a lower or no fee and move their account.
“Realistically, that’s not going to happen,” Sahm said. “That’s the pent up rage [against bank practices], but it could create attrition over time.”
The population of debit cardholders includes a sizable segment (between 25% and 33%, depending on the definition) that only uses their card to withdraw cash from ATMs, Auriemma’s data suggest. Some 75% of respondents said they withdraw cash at least once a month.
The youngest consumers averaged 7.7 withdrawals per month compared with 4.8 among respondents ages 35 and 54 and 2.3 for those ages 55 and older.
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