Although most pandemic restrictions have eased and cash payments are available again, consumers’ appreciation for debit’s convenience, real-time spend visibility and continuing improvements in fraud protection appear here to stay.
That is good news for financial institutions. Debit interchange is an important source of non-interest income – and an active, broad-based debit program gives issuers a valuable opportunity to reinforce their relationship with account holders on a daily basis.
“Debit matters for the bottom line,” Steve Sievert, Executive Vice President, Marketing and Brand Management at PULSE, observed, “and perhaps even more important, for the durability of the financial institution’s relationships with their customers.”
For the industry as a whole, the COVID-19 pandemic created debit-friendly conditions out of necessity, eliminating many opportunities for cash transactions.
This consumer preference for debit resulted in 9% growth in debit dollar volume year-over-year in 2021 and, boosted by a return to in-store transactions, the industry experienced 5% year-over-year growth in debit transactions, according to the 2022 PULSE Debit Issuer Study. Conducted by Mercator Advisory Group, this year’s 17th annual survey of leading debit issuers is slated for release in mid-October.
“Debit has been popular for a long time among consumers for their brick-and-mortar transactions, whether at the grocery store, gas station or other local merchants and services,” Sievert said. “Increasingly, that debit preference is also being seen in e-commerce and other ‘card-not-present’ channels.”
Consumers rely on the convenience of debit
While the pandemic caused a rapid shift in what people were buying (more essentials, less dining out and entertainment) and how they were making those purchases (more online, more contactless), debit enjoyed continued solid usage as it remained consumers’ preferred payment method. In fact, debit is the top payment choice among consumers, preferred by 43% of survey respondents, according to the Federal Reserve’s most recent Diary of Consumer Payment Choice.
Recent changes in daily life also pushed consumers to increase debit usage in digital channels. In fact, even with the recent rebound of in-person commerce, online shopping has become a habit for more people. The 2022 PULSE Debit Issuer Study shows that card-not-present (CNP) purchases now account for one in three debit transactions.
Debit is increasingly the card of choice in mobile wallets, A2A applications
As consumers become more familiar with different contactless and CNP payment options, mobile wallet usage continues to rise, especially with broader merchant acceptance. And many consumers are choosing debit for its real-time spending visibility.
Consumers are also linking their debit cards to various account-to-account (A2A) applications, including Cash App, Venmo, Zelle and PayPal. Results from the 2022 PULSE Debit Issuer Study indicate the dollar volume of A2A debit transfers jumped by 45% from 2020 to 2021. And while A2A still represents a relatively small share of debit transactions, it is increasingly attractive for person-to-person transactions that used to be made with cash or check.
“People used to need cash to pay the babysitter or yard crew,” Sievert pointed out. “Now they load their debit card into a peer-to-peer payment app, which makes for an easy, frictionless transaction.”
“Because debit is the most frequent touchpoint financial institutions have with their customers, it creates a natural opportunity for the bank or credit union to reinforce the value they deliver in terms of convenience, security and money management.”
Steve Sievert, PULSE Executive Vice President, Marketing and Brand Management
Debit is a competitive differentiator
The overall growth and consumer preference for debit are also creating challenges for issuers. Increasingly, fintech innovators and large merchants are striving to take on a central role in the financial lives of consumers.
This introduces a real risk to the connection between financial institutions and their cardholders, Sievert said, but it also offers opportunities. These new competitors are introducing financial services and payment platforms as an avenue to get closer to consumers and their purchase data.
But debit’s widespread popularity and its placement among established financial products and services creates opportunities for banks and credit unions to create deep and enduring relationships that can withstand such competitive threats.
“Because debit is the most frequent touchpoint financial institutions have with their customers,” Sievert said, “it creates a natural opportunity for the bank or credit union to reinforce the value they deliver in terms of convenience, security and money management.”
The takeaway? “Debit can – and should – continue to play a central role in the relationship that a traditional financial institution has with its account holders,” Sievert added.
Robust debit programs ensure banks capture recurring transactions
Beyond reinforcing the convenience, security and financial utility of debit, financial institutions can also deploy messaging and dedicated programs to keep debit top of mind – and top of wallet – to capture more incremental transactions.
As customers are invited to keep a card on file with businesses they interact with regularly, debit issuers can promote the use of debit for this type of situation. “Set it to debit” is an effective message for subscriptions and other recurring payments, such as those made to a cellphone provider, streaming service or ride-share operator.
Once a customer sets debit as their card on file, they’re unlikely to make a change, which helps ensure revenue from those ongoing transactions for the financial institution.
Debit can support a rewarding brand experience
Among some consumers, the brand experience delivered by a financial institution can be just as important as the product itself. Customers want to align with brands that support their values.
“‘Purchase with a purpose’ debit programs, when issuers donate to a local charity with each debit transaction, can help financial institutions differentiate themselves from non-local competitors and support an engaging brand experience,” Sievert said. This type of community involvement builds loyalty among customers and helps raise the institution’s profile.
Each of these approaches to recognize, support and enhance the benefits of debit are key to sustaining its broad consumer appeal. There is no doubt that debit is the consumers’ preferred form of payment in a growing range of transaction channels. Financial institutions that keep their debit program top of mind and respond to these opportunities can improve their profitability and help build long-term and loyal relationships with their customers.