A recent national survey of U.S. debit card users sends two clear messages to the electronics payments community and retailers:
— Card users have definite opinions on their preferences for payment methods, and can be classified into several distinct categories.
— Regardless of which payment method is preferred, consumers are virtually united in opposing any developments that would interfere with the use of their debit cards, and many are willing to change where they shop should such restrictions be enacted.
In the new study, which was commissioned by PULSE EFT Association and conducted by Analytica, Inc., consumers demonstrated unexpected levels of loyalty to and satisfaction with their preferred payment method and provided feedback about possible changes in the payments system such as reduced acceptance of debit cards and the possible assessment of new debit fees.
Participants were asked which of six payment methods they use most in three retail settings: grocery stores, gas stations and large retailers. The payment methods identified were PIN debit, signature debit, cash, major credit card, check and store charge card. Respondents’ answers revealed that they are more likely to choose one payment method over the others and are inclined to use it across these retail settings, rather than varying their payment method with the type of store.
“The degree to which consumers are loyal to their preferred payment method has become striking, especially in the case of debit,” said PULSE President and CEO Stan Paur. “The survey confirmed some of our long-held beliefs about why consumers are increasingly adopting debit payments, and further analysis identified implications for financial institutions and retailers.”
The U.S. payments industry has undergone a significant shift in recent years. Check usage is declining, adoption of electronic payment forms is growing, retailers settled their lawsuit against Visa(R) and MasterCard(R), and one major retailer stopped accepting debit MasterCard. To better understand these trends and their potential effects on consumers, PULSE commissioned a national survey of 716 people with debit cards who have used them at some time in the past to make a purchase at a retail location.
The survey findings regarding payment method loyalties enabled Analytica to segment the responses by respondents’ preferred payment vehicles. When the results were analyzed separately by these segments, new insights emerged. The study defines the six payment loyalty segments as follows:
— Respondents who say they pay most often with PIN debit (23.5 percent of participants).
— Those who pay most often with signature debit (17.0 percent).
— Those who use a debit card most but place less emphasis on the verification method employed (13.8 percent).
— Those who pay with credit cards most (17.8 percent).
— Those who pay most often with cash (15.4 percent).
— Those who pay with checks most (12.6 percent).
When asked to rate their satisfaction level with each of the payment methods, PIN debit purchasers reported being the most satisfied with their chosen payment method (9.6 on a scale of 1 to 10), followed closely by credit card users (9.5) and signature debit users (9.3). In comparison, check users’ satisfaction with checks rated only 8.1.
According to the survey, when consumers choose debit over other payment methods, it is chiefly because they believe it is faster and easier. The second most frequently cited reason for choosing debit is avoiding credit balances and interest. The option to receive cash back was rated much lower, and sweepstakes and promotions have little impact on the choice of payment among debit users.
The study found that check users express some concerns with checks, suggesting that individuals in this group may be converted to paying with debit. Among people who pay predominately with cash, given a choice between check, credit card and the two types of debit, these individuals indicated a preference for PIN debit. As a result, they also would appear susceptible to transitioning to the use of PIN debit.
In addition, the survey revealed some relevant findings for merchants that accept debit cards: regardless of their preferred payment method, consumers are almost universally opposed to actions that would inhibit the use of their debit cards.
When asked how they would respond if a merchant stopped accepting their debit card, 81.4 percent of participants said they would be “very unhappy,” and 29.7 percent said they would stop using the merchant. If merchants began charging to accept debit cards, 79.2 percent of respondents would be unhappy, and of those, 37.4 percent said they would switch to a different payment method and 21.2 percent said they would stop using the merchant. Similarly, if financial institutions began charging a fee for debit card payments, 85.3 percent of respondents reported they would be “extremely dissatisfied,” and 43.7 percent said they would change institutions.
“This study clarifies consumer payment choices and provides the electronic payments industry with some guidelines for gauging potential cardholder response to a number of scenarios,” said Paur. “Banks and credit unions can use this information when making decisions about their card programs. Retailers also will find helpful an awareness about the likely consumer reaction to potential changes in payment acceptance and fees.
“The findings with regard to consumer payment method loyalty tell us more than we’ve ever known about this key factor in decision making,” Paur continued. “It is clear that consumers want the flexibility to pay by any method they choose in the retail environment, and with no institution or merchant fees attached.”
The executive summary of the 2004 PULSE study, “Understanding Consumer Payment Choices in a Changing World,” is available on the PULSE Web site at . The full study is available to PULSE members at no charge.
About PULSE EFT Association
PULSE is the nation’s leading independent financial industry-owned and controlled electronic funds transfer network, currently serving more than 4,600 bank, credit union and savings institution members across the country. It is the only major network solely owned by financial institutions. The network links an estimated 90 million cardholders with nearly 250,000 ATMs and 3.3 million POS terminals at retail locations nationwide. In recent years, PULSE has become known as a valued resource for consumer research related to EFT services and an effective national voice on public policy issues relevant to the financial services industry. For more information, visit .