Debit Card Use Grows vs. Credit Card Use

According to an article in the Wall Street Journal by Calmetta Coleman, consumers are increasing their use of debit cards relative to credit cards. A recent survey by the American Bankers Association and Dove Consulting show the following distribution of in-store transactions in 1999 and the first half of 2001.

Although debit card transactions outnumbered those on credit cards, they accounted for a smaller dollar amount. Consumers are more likely to use credit cards for big-ticket purchases, as well as for business expense accounts and purchases by telephone or on the Internet. The Federal Reserve has reported that credit cards have accounted for about 15 billion transactions annually and about $1.23 trillion vs. 8.3 billion transactions and $34.8 billion on debit cards.

Several factors may explain the trend towards the use of debit cards. First, consumers may be more cautious in these uncertain times and prefer not to increase their debts. Second, as noted in an earlier edition of Spotlight, retailers are encouraging the use of debit cards because they give a smaller share of the amount of the transaction to the card-issuing bank. One limitation in the use of debit cards is a daily limit on purchases, but banks are already raising the daily limit, especially during the holiday season.