Consumers like electronic payments. So was the conclusion of the 2008 Study on Consumer Payment Preferences conducted by BAI Research in conjunction with Hitachi Consulting. Although there weren't too many surprising revelations, I was inclined to believe there is more going on in the debit space than meets the eye.As I sat through the session that covered the research results, I just kept nodding my head in agreement with more or less everything that was revealed from the study. Checks and cash are in decline. Even the credit card has seen a slight decline in use. Debit is still up, though isn't quite seeing the huge uptake of the last two years, indicating that it is stabilizing as a payments medium, concluded Chris Allen, director of the national financial services practice at Hitachi Consulting. "Consumer comfort with electronic payments is increasing and we expect that trend to continue," he told attendees.
Although the session covered the gamut of payments-checks, cash, credit cards, prepaid cards, bill pay-I still found the information on debit to be most telling. Why do people choose debit cards? Allen posed. Participants in the study listed a variety of reasons, including speed and convenience, being able to get cash back at the point of sale, no interest payments and being less likely to spend beyond their means.
These last two points, to me, should definitely be viewed in the greater context of the financial crisis. As mentioned earlier, there have been indications that debit is gaining on credit as the preferred plastic payment mechanism. Now that budgets are being tightened among consumers, businesses and the banks that serve them, having the ability to more closely monitor and control one's spending habits will become even more important. I think debit can fill this role nicely.
There is, of course, the danger of people using their debit cards like credit cards if they're not too careful, as TowerGroup's Ted Iacobuzio cautioned during a recent teleconference. So rather than running up a high balance on a credit card, consumers potentially run the risk of depleting their checking accounts directly.
That said, perhaps there's an opportunity here for debit card-issuing banks to step in and provide service around smart debit card usage to their customers. If people are going to shun their credit cards, that is certainly bad news for those issuers, but if you're a bank with its hands in both businesses, additional debit services could be a good way to stave off some of the ill effects of the credit crunch.
Those are just my thoughts. I would be interested to hear what our readers think about the potential of debit (and the dangers) during a tight economy. Feel free to chime in.