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There’s a Battle Brewing for Top of Wallet: Debit vs. Credit

By PaymentsJournal
September 18, 2020
in Credit, Debit, Truth In Data
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Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left corner of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Mercator Advisory Group’s report – Credit Card Products for a New User Environment

There’s a Battle Brewing for Top of Wallet: Debit vs. Credit

  • In 2018, consumers hit an inflection point and began preferring debit to credit; credit had an all-time high of 37% top of wallet share among single payment users.
  • Card issuers’ main concern had been competing for top-of-wallet status against other credit cards, a battle often pitting rewards programs against each other.
  • Now the top of wallet competition is Credit vs. Debit, a battle fought mostly on the intrinsic attributes of the cards.
  • Two trends, the shift from credit to debit and the shift to a single consolidated payment, were underway pre-pandemic.
  • As of June 2020, Mercator survey data indicates that pandemic-driven credit vs. debit usage remains relatively unchanged.
  • Other payment methods are accelerating, specifically charge cards (41% of consumers trying to use more) and general purpose reloadable cards (40% trying to use more).
  • Cash, however, is on the decline: 27% of consumers are trying to use less cash.

About Report

The pandemic changed life as we know it for credit card lenders and cardholders. Being a lender is not so simple anymore. Profitability is under siege, driven by loss provisioning, declining outstandings, changing spending patterns, debit competition, erosion in the power of rewards, and a deep recessionary environment. Primarily driven by the externality of the COVID pandemic, many behavioral changes among cardholders are likely to be long term, if not permanent.

Mercator Advisory Group research, Credit Card Products for a New User Environment, indicates a shift in credit and debit patterns. Contactless payments mean more to merchants, consumers, and issuers than ever. Durable spending is down; consumptive spending is up. And, credit card deferrals do not seem to carry the stigma they once did. Rewards consume a large portion of interchange, and in a shifting market, all costs must receive consideration.

“You cannot simply throw rewards at consumers and expect profitable market share,” comments Brian Riley, Director, Credit Advisory, at Mercator Advisory Group, and the author of the research note “Credit Card Products for a New User Environment.” Riley adds that “Credit cards are certainly not going away, but expect lower returns, higher risks, and shifting purchase patterns at least through 2025. And, do not forget the investor. It might be balance sheet lending or asset-backed securitizations enabling the credit card lender, but without the investment, card lending will cease. Lending is a risk-based business; it requires a return for tolerating the risk.

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Tags: CashCharge CardsConsumer BehaviorCoronavirusCreditCredit CardsDebitDebit CardsGPRTruth In Data

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