The Green Sheet Online Edition
March 09, 2009 • Issue 09:03:01
It's a card, card world
According to the 2008 Study of Consumer Payment Preferences, a nationwide survey conducted by BAI Research and Hitachi Consulting Corp., cash use is dropping as consumers continue to adopt card-based payment options. Forty-one percent of consumers said they use cash less often than they did two years ago.
The study was conducted online in June 2008 using a representative sample of 3,308 U.S. consumers nationwide.
Sponsored by First Data Corp., Metavante Technologies Inc., MasterCard Worldwide and Discover Financial Services' Pulse network, it explored the increasing use of credit, debit, gift and prepaid cards.
"More and more consumers are substituting card-based payments in place of cash," said Ajay Nagarkatte, Managing Director of BAI Research. "Of those who have reduced their cash use, 97 percent are shifting to credit, debit, or gift and prepaid cards instead."
Traditional card-based payment methods have caused a decline in check transactions as well, and that trend continues today. A May 8, 2008, article entitled "Lasso merchants with RDC," The Green Sheet, issue 08:05:02, reported that check volumes accounted for 33 percent of all noncash payments between 2003 and 2006. But the amount of money paid via checks increased from $39.3 trillion to $41.7 trillion during the same period.
The payment preferences study also reported that checks have decreased from 18 percent of the payment mix in 1999 to 8 percent in 2008. Much of this decline is attributed to younger consumers who increasingly prefer electronic payments.
In the loop
The study also found that debit cards have experienced "phenomenal" growth over the past few years, with signature and PIN debit accounting for 37 percent of consumer in-store purchases; 35 percent continue to use signature debit because of the lower fees, inability to remember PINs and, in some cases, reward programs.
Gift and prepaid cards accounted for only 4 percent of in-store payments; this number has not changed since 2005. Retail specific, closed-loop cards dominate the gift card landscape, but the number of open-loop cards purchased between 2005 and 2008 doubled.
According to a First Data Corp. company spokeswoman, this issue is not a case of open-loop versus closed-loop; open- and closed-loop cards have distinct advantages and serve different needs. General purpose reloadable cards offer the convenience of credit and debit cards, while eliminating the risk of using cards to spend beyond consumers' means.
"Today's card-based payments have done much to erode the base of paper transactions in the U.S.," said Chris Allen, Director of Consulting and Financial Services for Hitachi. "And emerging payment methods like contactless and mobile are likely to take it further still."
According to the Smart Card Alliance, 45,000 U.S. merchant locations offer contactless payment options. Industry analysts predict these figures will continue to grow, and by 2012, consumers will be using approximately 109 million contactless cards and making 2.2 billion smart card transactions annually.
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