Consumers dramatically changed their debit payment habits in 2020, shifting spend from in-store to online and increasing use of payment apps. These changes, spurred by the COVID-19 pandemic, accelerated shifts in consumer spending habits that were under way prior to the onset of the novel coronavirus.
Preliminary findings from the 2021 Debit Issuer Study, commissioned by PULSE and conducted by Oliver Wyman, provide insight into a number of debit trends, including:
- Debit cardholders made fewer, larger purchases last year, resulting in greater overall debit spend.
- As they altered their spending patterns, there were clear winners and losers among merchant categories.
While every issuer’s experience is unique, a few universal truths have emerged from this year’s study.
Fewer, Larger Debit Purchases
It was widely reported that consumer spending declined precipitously in the second quarter of 2020. But the full-year totals reveal ripples throughout the debit market last year – sometimes in opposite directions.
The total number of debit transactions declined for the first time ever in 2020, falling 2.5% year-over-year (YOY), while overall debit spend rose 14%. The average debit ticket size increased 11%, from $40.50 in 2019 to $44.80.
A closer look shows that increases in card-present (CP) ticket sizes drove overall growth, while the average card-not-present (CNP) ticket size declined slightly. The final result was that, while total transactions fell, overall debit spend, excluding prepaid, reached $3.4 trillion in 2020.
Merchant Category Winners and Losers
It won’t come as a surprise to anyone who follows payments that a significant share of consumer purchasing shifted from in-store to online in 2020. If you think about how the pandemic altered the lifestyles of many Americans, it’s easy to imagine how those changes would affect debit activity. For instance, many office workers switched to working from home, which prompted investments in big-ticket items for home improvements and a sizeable decline in petroleum sales. In addition, a portion of grocery and restaurant spend shifted to the digital channel as consumers placed orders online for pickup or delivery.
Aside from grocery shopping, many brick-and-mortar merchants and malls closed temporarily, which contributed to an explosion of e-commerce activity. The size of that digital shift was revealed by the whopping 57% increase in the number of debit transactions in the “book stores” merchant category, which includes Amazon. As reported by The New York Times, “Amazon reported record sales, and an almost 200% rise in profits, as the pandemic accelerated the transition to online shopping.”
The 2021 Debit Issuer Study also identified low-cost goods as a winner, noting that rising unemployment and tighter budgets led cardholders to stock up on essentials and shift spending to more cost-effective merchants.
In contrast, the transportation merchant category saw debit transactions plummet by more than half due to stay-at-home mandates. The 53% decrease was the deepest decline of all the merchant categories. Other sectors experiencing big drops in debit transactions included restaurants and bars (-18%), many of which were shut down temporarily, and clothing stores (-8%), which many consumers considered unnecessary while they were home-bound.
The study identified three unprecedented data points stemming from the pandemic.
- The first contraction in the total number of debit card transactions. As noted above, 2020 saw fewer but larger debit purchases. Debit transactions dropped to 76.1 billion in 2020 from 78.1 billion in 2019. This shift followed two decades of solid growth.
- Debit and prepaid spend surpassed credit. In 2020, total debit dollar volume including prepaid increased to $3.66 trillion. This included $3.42 trillion in debit and $240 billion in prepaid. This combined spend exceeded total spend on credit cards in 2020 ($3.66 trillion) for the first time. Even so, issuers generally are doubtful whether this growth resulted from shifts away from credit.
“We don’t think there was a shift from credit to debit," said one respondent from a national bank. “Credit is used for travel and entertainment, and T&E experienced the biggest pullback. We don’t see credit users becoming debit users for the same type of transaction.”
- CNP transactions exceeded CP for card-brand networks. CNP transactions increased to 50% of transaction volume (excluding ATM withdrawals) for the card brands, compared to 33% in 2019. For all networks combined, CNP accounted for 30% of debit transactions. This difference between network types is not surprising given consumers’ frequent use of PIN debit for everyday spend such as grocery and fuel purchases.
Will Changes Stick?
It remains to be seen whether the shifts in consumer behavior revealed by the 2021 study are temporary or permanent. According to one national bank respondent, “We won’t go back to the way things were. The convenience factor of CNP has proven itself out. That said, we’ll probably see a small reduction in CNP in the near-term as the economy normalizes.”
We hope you enjoyed this sneak peek into the findings from the 2021 Debit Issuer Study. Look for more findings from the study later this summer.