Jul 13 2010

Debit or Credit: Either, Both, Neither, or How Much?

Report  
Number  
216

An analysis on consumer payment method preferences focusing on cash, check, debt card, and credit card usage.

Ben Rogers
Managing Director, Research
Luis Dopico
Luis Dopico
Economist
Report Number 216

Executive Summary

If cash is the currency king, then its death has been predicted in vain for years. Its brother the check, while in long decline, also stubbornly refuses to relinquish a powerful place in family finances. But the past two decades have seen a rapid rise in credit and debit card use, which is the focus of this report. The new payment mix is more about market share than about which payment dominates or will dominate. Credit unions care deeply about whether consumers use debit and credit cards. Cards tie consumers to their financial institution and are among the few revenue centers credit unions can influence.

What is the research about? 

This report uses data from the Consumer Finance Monthly (CFM) survey to figure out just who uses which payment methods. In a market that is forever adjusting to new consumer preferences and behavior, the payment habits of consumers are important for credit unions. The variety of data available in the CFM survey allows the researchers to segregate intensive and casual users of each method by factors like income, net worth, ethnicity, education, and age.

With the detailed data in hand, the report can highlight opportunities for credit unions and forecast with some near-term certainty which groups will demand which payment options in coming years.

What are the credit union implications?

This report confirms previous Filene research—Debit vs. Credit: How People Choose to Pay—that illuminates the often irrational ways that consumers choose payment methods. But what may be perfectly rational reasons for using a credit card (interest-free loans for non-revolvers and generous rewards) may not account for those who use debit to control spending or avoid the danger of revolving debt. New overdraft regulations could also make debit simpler and more attractive for everyday users.

This report is sponsored by CO-OP Financial Services.