Originally posted: https://www.pymnts.com/next-gen-debit/2020/the-next-big-thing-is-debit/
Using credit cards (aka spending the bank’s money instead of your own) seemed so cool — until it suddenly wasn’t nearly as cool anymore. That change in consumer behavior had a lot to do with the market crash of 2008 and differing ideas about financial security, especially between ascendant millennials and cohorts with less collective spending clout.
Then, just when everyone was really making money again, along comes COVID-19, wiping out the economy yet again, and within recent living memory no less. It’s unheard of and makes dependable debit the belle of the ball once again as people consider the upcoming winter.
“FIs may … need to reconsider the nature of the cards they offer because consumers who have been financially burdened by the crisis appear to be showing less interest in credit cards,” according to the June 2020 Next-Gen Debit Tracker® done in collaboration with PULSE, A Discover Company. “Those who have lost jobs or faced employment insecurity may be less certain that they can pay off debts and thus prefer to spend only the money they have in their bank accounts. This trend is significant — one financial services company expects U.S. consumers to shift as much as $100 billion in annual spending from credit to debit cards.”
My Money, My Way
The June 2020 Next-Gen Debit Tracker® examines the current state of debit in numerous contexts, perhaps none so important as guaranteeing great consumer experience and security.
Easier said than done, but everyone’s trying like mad.
“[Digital banks must] look at how to adequately mitigate risk without severely impacting the consumer experience, [such as] making [processes] that take five steps only take three, [effectively using] automation, [employing] great technology [and] having very strong partners,” Carlos Mejia, chief digital executive, Pacific National Bank and FACILE, told PYMNTS.
“Those are critical. Step reduction is something that can occur without customer input but with automation. In your account-opening process, [for example,] you can get your customer identification process done in only one step by scanning an ID and using that information to complete parts of … customers’ applications with their confirmation [and] then also running their name checks and deposit histories in the background within that process so the approval can happen faster. That makes a huge difference.”
Everything makes a huge difference when it’s your own money. Even so, people see debit as shelter from the storm of debt many have already accumulated. “The COVID-19 pandemic is putting consumers under greater financial stress and many are steering clear of credit lines they may be unable to repay. This has pushed credit card sales 20 percent lower than they were at the same time last year, Jeff Chernivec, senior vice president of strategy at payment solution provider Elan, told PYMNTS. Card issuers are therefore missing out on interchange fee funds and are concerned about whether consumers who are still using credit can pay their bills.
Credit Could Take a $100 Billion Hit
Despite the fact that many financial institutions (FIs) have allowed cardholders to defer bill payments and have resisted reporting delinquent cardholders to to credit bureaus, the shift to debit is as sure as the shift to digital. It’s even affecting the titans of capitalism.
“Financial services firm Visa is also anticipating a strong consumer shift from credit to debit cards. Oliver Jenkyn, the company’s executive vice president for North America, said at a recent conference that consumers made similar pivots during 2008’s Great Recession as well as in response to uncertainties regarding the 2018 U.S. shutdown and trade war with China,” the Tracker states.
“He anticipated that consumers could move up to $100 billion in annual spending from credit cards to debit cards as they become less willing to take on debt. Jenkyn also said he expected consumers’ heightened budget consciousness to prompt them to abandon credit cards with high rewards and annual fees in favor of those with lower or no fees.”