More consumers choose card payment method

With the emergence of prepaid cards, the spectrum of card-based payment options is now complete. Consumers can choose to pay before, during or after a purchase - and most consumers choose to exercise one or more of these options.

Data for the 2005/2006 study was collected through a national paper and Web survey sent to U.S. consumers, with a total of 3,008 completed surveys received. ACI Worldwide, Citi, The Clearing House and MasterCard sponsored the research.

Paying later

The original card-based payment method, credit cards, continues to be a popular payment choice across all three major payment venues.

Credit cards represent 19 percent of consumers' in-store payments, 55 percent of Internet payments, and account for an increasing number of online bill payments and automatic payments.

However, consumers' reported use of credit cards appears to be slowly declining. Although the number of merchants and billers accepting credit cards is increasing, credit cards' share of in-store payments is down from 22 percent in 1999 and 21 percent in 2001 and 2003.

Between 2003 and 2005, credit cards' share of Internet purchases fell from 64 percent to 55 percent.

“An increasing number of consumers are making debit cards their primary payment card. The growth of debit may have a long term impact on the future growth of credit cards, especially as younger cardholders mature and their payment habits become more engrained,” said Melissa Fox, a manager in the financial services practice at Dove Consulting, in a news release.

Study results indicate that debit cards are encroaching on credit card transaction volume, and that debit use has a negative impact on consumers' planned credit card use.

On net, 7 percent of consumers who use debit cards expect their use of credit cards to decrease over the next two years. However, consumers who don't use or don't have debit cards expect to increase their use of credit cards over the next two years (net 16 percent and 6 percent, respectively).

Pay now

In the study, 83 percent of consumers reported having a debit card, and of those, 95 percent have signature-capable cards that can be used for both personal identification number- and signature-debit transactions.

Although most consumers use both PIN and signature debit, 48 percent of consumers reported a preference for PIN debit, while 34 percent indicated a preference for signature debit (18 percent have no preference between the two).

The number of consumers enrolled in debit rewards programs has increased from 8 percent in 2003 to 13 percent in 2005.

Study results show that debit rewards programs appear to influence consumer use of debit cards, particularly of signature debit. Of cardholders enrolled in a rewards program, 46 percent plan to use signature debit more often because of rewards, versus 16 percent indicating a likelihood of using PIN debit more.

Prepaid cards

The fastest-growing payment method - albeit from a very small base - is prepaid cards, with the share of consumers' in-store payment mix doubling from 2 percent in 2003 to 4 percent in 2005. Although an increasing number and variety of prepaid applications exist in the marketplace, only gift cards have gained widespread consumer adoption to date. Currently, 65 percent of consumers have either purchased or received gift cards.

Retailers dominate in gift cards, with 90 percent of consumers who have bought gift cards in the last 12 months doing so at a retail site where the card would be used. Retailers where the card cannot be used ranked second with 17 percent of gift card purchasers.

Only 4 percent of consumers report having purchased a gift card at a financial institution.

Growth of card-based payments is expected to continue to increase, driven by consumer preferences, greater merchant acceptance and the introduction of new payment applications that leverage the existing payment card infrastructure and give consumers increased opportunity to choose card-based payments.

The 2005/2006 Study of Consumer Payment Preferences covers how consumers pay in different venues, why, and how their payment habits are likely to evolve going forward. The study provides insights into consumer behavior and preferences across three payment venues: retail point-of-sale (in-stores), Internet purchases, and bill payments.