The debate continues as to whether consumers will again embrace the use of credit cards at the expense of debit, and how merchants may steer the decision. In spite of recent changes in debit pricing, consumers often still prefer debit for its financial control benefits and, for the most part, still have access to “free” checking should they seek it.
“For many consumers, debit is really their favorite way of paying,” says Paterson, the payment industry researcher. “In the past three years, consumers are using debit cards more because they don’t want to build up their revolving credit card balances. As a nation, we are still deleveraging our credit cards.”
Merchant steering of consumer payment choice is still in its formative phase under today’s new debit pricing rules.
Not all discount offers will work for every shopper, as Paterson and others notes. In the case of buying furniture at IKEA, for example, the 1 percent discount may entice some shoppers but not others to buy furniture with their debit cards, says Paterson.
“The question is: Is 1 percent a sufficient incentive for a consumer?” he asked. “If you’re going to get a 1 percent discount on a $200 ticket, that’s $2. If you’ve got the money in your checking account and you don’t have a better deal on some other cards in your wallet, then that’s probably a sufficient incentive. Across all retail broadly speaking from small to large, how strong an incentive is 1 percent going to be?”
He cited the Target private label store credit cards and debit cards as an example. Target’s RED cards offer users 5 percent off daily purchases — an amount, says Paterson, that’s “much more visible from a consumer perspective.”
Merchants want to make the sale, and in today’s challenging economy, few want to erect hurdles to consumer purchases. For the present, as merchants experiment with incentives, consumer choice is likely to reign.
In the end, merchants really want to make a sale, says Bob Baldwin, president of Heartland Payment Systems, a payment processor. They don’t want any efforts to steer customers toward any one particular card to discourage shoppers.
“Historically, merchants don’t want the payment method to get in the way of the customer making the actual purchase,” says Baldwin. “They want to get them through the line.”