As Economic Recovery Gains Traction, Will Debit Cards Yield to Credit Cards?
According to research by MasterCard, during times of economic despair, consumers favor financial instruments that limit their ability to overspend. At the start of the financial crisis, approximately $141 billion in consumer spending shifted from credit cards to debit card products.
But today the economy is growing, albeit slowly. Measures of consumer sentiment are on the rise, according to May 2014 Consumer Confidence Survey. The stock market continues to set new records. The housing market is making headway.
MasterCard reports that in 2012, there was a nearly $8 billion shift away from debit and prepaid cards toward credit cards.
Consumer Shift to Credit Cards Could Be a Boon to Business Owners
What does the shift from debit card use to credit card use mean for merchants? According to a white paper by Moody’s Analytics, potential benefits of the shift for merchants include more consistent revenue and, potentially, less price sensitivity.
Because debit card use is limited by funds available, consumer spending is also restrained. Credit cards, by comparison, expand consumer buying power. Moody’s also notes that consumers who become more amenable to paying with credit are less hesitant to purchase.
Despite the factors that may be working against debit cards, Nitin Sumangali, author of MasterCard’s consumer spending report, notes consumers probably won’t ditch debit cards altogether: “It’s not that debit cards and credit cards are necessarily replacing one another. Consumers become less fearful and more confident about their ability to use credit and debit cards as complementary tools to manage their money.”
Though merchants will likely see more consumers reaching for credit cards as the economy improves, the humble debit card won’t be vanishing any time soon.