Debit and Credit Card Programs in the U.S.

This study examines consumer usage of both credit cards and debit cards. Issues related to the relationship between usage of the two cards, as well as rewards and pricing are explored. Reaction to new card regulations and innovative products is measured as well. The research included a United States Internet survey with 1,000 consumers age 18 or older.

Research Issues

The world of debit, credit, and charge cards is rapidly changing. New legal and regulatory changes could have a significant impact on consumer perceptions and credit card usage. Credit card issuers are evaluating a number of approaches to the new environment to address these challenges. Some issuers appear to be moving away from punitive responses such as reducing credit lines.

Product design efforts highlight a return to the basics and efforts to encourage responsible credit usage. Some issuers are promoting alternative payment terms as options for their card products. A number are looking at a return to fee strategies such as annual fees and inactivity fees.

These developments could impact the phenomenal growth of debit cards. Even before the recent credit crisis, consumers were stepping up their use of debit cards in comparison to credit cards. An outcry from consumers and lawmakers regarding debit card overdraft fees has led some institutions to change their pricing structures for these services. Reward programs continue to impact both debit and credit cards.

What is the relationship between credit cards and debit cards – competitive or complementary? Would combined credit and debit card reward programs help cement the payment franchise of banks? Contactless payment methods, including mobile alternatives, are also on the horizon. What is the reaction of U.S. consumers to contactless payments?

Card issuers need to evaluate the relationship between debit and credit cards as they move forward in the new payments environment.

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LIST OF EXHIBITS

EXECUTIVE SUMMARY

SECTION I: COMMENTARY

Overview
Key Findings and Recommendations
- General
- Impact of Credit Card Reform and New Regulations
- Reassessing Co-Branding and Reward Programs
- Product Innovations
- The Future


SECTION II: BACKGROUND RESEARCH

Overview
Payment Method Adoption
Consumer Payment Volumes
Payment Cards Overview
- Credit Cards vs Debit Cards

Credit Cards
- Growing Problems in the Credit Card Market
- Delinquent Credit Card Debt
- Decreasing Credit Card Debt
- Declining Credit Card Use
- Changing Consumer Attitudes Toward Credit Card Debt
- Industry Trends Impacting Credit Card Usage
- Declining Public Opinion of Credit Card Companies

CARD Act
Debit Cards
- Visa Debit
- MasterCard Debit

Card Fees

- Interchange Fees
- Debit Interchange Fees
- Wal-Mart Lawsuit & Its Effect on Debit Interchange Fees
- Merchant Fees
- Annual Fees

Point of Sale Activity

- PIN vs Signature Debit
- Merchant Pushback

Debit and Credit Card Reward Programs
- Debit and Credit Card Reward Incidence
- Debit Card Reward Programs
- Satisfaction with Card Reward Programs
- Impact of Card Reward Programs
- Merchant Funded Rewards
- Growth of Merchant Funded Reward Programs

Contactless Cards
Micropayments
Alternative Payments
- PayPal & eBay
Online Payments
Conclusion
Appendix
Bibliography


SECTION III: POWERPOINT PRESENTATION OF SURVEY RESULTS

Card Environment

- Consumer Attitude: “I Hardly Ever Pay for Purchases with Cash Anymore”
- Consumer Attitude: “It's Faster to Pay for Purchases Using a Credit or Debit Card”
- Consumer Attitudes Toward Credit Cards
- Consumer Attitudes Toward Debit Cards
- Usage of Prepaid Cards for Personal Use (by Age)

Credit Card Usage

- Credit Card Usage – Major Brands
- Number of Various Credit Cards Used by Household
- Average Monthly Frequency of Credit Card Usage (by Household Income)
- Change in Frequency of Credit Card Usage in Past Year
- Typical Monthly Credit Card Payment Behavior (by Household Income)
- Change in Balance Payment in Past Year
- Average Credit Card Debt Outstanding (by Household Income)
- Change in Outstanding Balance in Past Year
- Incidence of Credit Cards with Checking Provider

Debit Card Usage

- Extent of Debit Card Usage (by Age)
- Average Monthly Frequency of Debit Card Usage (by Age)
- Change in Frequency of Debit Card Usage in Past Year
- Preferred Method for Making Purchases
- Reasons for Preferred Purchase Method – PIN vs Signature
- Reasons for Nonusage

Spending Behavior and E-Commerce

- Amount Spent Monthly – Credit Cards and Debit Cards
- Past Year Changes in Amount Spent Monthly – Credit Cards and Debit Cards
- Purposes for Usage – Credit Cards and Debit Cards
- E-Commerce Activities – Credit Cards and Debit Cards
- Used Most Often for Purchases – Credit Cards or Debit Cards
- Top Reason for Using Credit Cards Most Often
- Top Reason for Using Debit Cards Most Often
- Usage of Debit Cards More and Credit Cards Less in Past Year (by credit card Usage)

Pricing

- Type of Fees Paid – Credit Cards and Debit Cards
- Types of Transaction Fees Paid – Debit Cards
- Mean Amount of Transaction Fees Paid – Debit Cards
- Potential for Fees

Co-Branded Cards

- Co-Branded Card Partners – Credit Cards and Debit Cards
- Most Important Feature of Co-Branded Cards – Credit Cards and Debit Cards

Rewards Programs

- Rewards – Credit Cards and Debit Cards
- Reward Program Pricing – Credit Cards and Debit Cards
- Actions Taken for Reward Program – Credit Cards and Debit Cards
- Perceived Changes in Reward Programs – Credit Cards and Debit Cards
- Advantages of Reward Programs
- Disadvantages of Reward Programs
- Combined Credit and Debit Card Rewards – Availability and Usage
- Value of Combined Rewards Programs

Changes in Card Terms and New Card Regulations

- Awareness of Changes in Credit Card Account Terms
- Acceptance of Changes to Credit Card Terms
- Result of Not Accepting Changes
- Impact of Changes on Household
- Contacted Issuer
- Result of Card Changes
- Purposes for Contacting Issuer in Past Year
- Issuer Response to Contact
- Recent Actions Taken Regarding Credit Cards
- Awareness of New Card Regulations
- Perception of Long-Term Impact of New Card Regulations

Contactless and Chip Cards

- Contactless Payments – Awareness and Usage
- Awareness and Usage of Specific Contactless Cards
- Likelihood of Using Contactless Payment Card (by Credit Card Usage)
- Mobile Contactless Payments – Awareness and Usage
- Preference for Mobile Devices Over Cards for Contactless Payments
- Benefits of Contactless Payments
- Concerns with Contactless Payments
- Awareness of Chip-Enabled Cards (by Credit Card Usage)
- Reaction to Chip-Enabled Cards

Card Application

- Overdraft Protection – Incidence and Type
- Pricing for Overdraft Protection
- Frequency of Usage of Overdraft Protection
- Likelihood of Obtaining Overdraft Protection (by age)
- Value of Allocating Transactions (by age)
- Card Access to Home Equity Line of Credit

Future Expectations and Response to the Economy

- Large Expenditures and Payment Methods in Next Year
- Attitudes Toward Credit
- Response to Economic Conditions

Credit Scoring

- Incidence of Being Turned Down for
- Credit Based on Credit Score (by Household Income)
- Fairness of Credit Decisions Being Based on Credit Score
- Awareness of Credit Score (by Household Income)
- Difficulty Obtaining Credit in Current Market

Methodology

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