Credit Cards Versus Debit Cards
Trends around the use of credit cards versus debit cards in the United States include the growing use of credit cards compared to debit cards, the huge contribution of online purchases in fueling the use of credit cards, and the narrowing market gap between credit and debit cards because of stiff competition.
Our research team was able find most of the information needed to answer this request online. However, the team had to devise a way of selecting the trends just to make sure that they are truly trends. First, we selected those trends that feature in multiple reports that the team surveyed. Most of the reports that we came across (from ValuePenguin, Mintel, Federal Reserve, and Federal Reserve Bank of Philadelphia) agree that there is high usage of credit cards than debit cards. Secondly, we selected trends that are backed by statistical evidence or an industry expert and, in this case, they included experts from the financial sector or financial technology. Our research team selected trends discussed in reports published by reputable financial institutions like ValuePenguin , the Federal Reserve System, Federal Reserve Bank of Philadelphia, and Consumer Finance Institute.
Finally, our team searched for the most recent sources as possible. However, all sources that we got, even the most recent ones, cited data from the past five years. The most recent source that we found dates back to February 2019 and it has cited data from 2017 going back. In addition, most of the sources that we got are primary sources (ValuePenguin, Federal Reserve, and Federal Reserve Bank of Philadelphia) and majority of other recent sources have cited from them. We concluded that these are the most recent data available in the public domain about how consumers use credit cards versus debit cards in the United States.
TRENDS AROUND THE USE OF CREDIT CARDS VERSUS DEBIT CARDS IN THE UNITED STATES
1. THE USE OF CREDIT CARDS IS GOING UP WHILE THAT OF DEBIT CARDS IS GOING DOWN
Recently, there has been a steep decline in use of debit cards among consumers across the United States. On the other hand, the use of credit cards among consumers is on the rise.
In the last fives years, the percentage of households that use debit cards has reduced from 74 percent to 58 percent. This decline reflects in every state. The average United States citizen has 3.1 credit cards which have an overall outstanding balance of $6,354 plus a credit score of 675. Most consumers in the United States, 44 percent, would prefer to make payments using their debit cards as opposed to credit cards. Between 2015 and 2016, credit card payments in the United States grew by 10.2% compared to 8.1% between 2012 and 2015. This represents the highest growth rate among core payment types. On the other hand, debit card payments grew by 6% between 2015 and 2016 and 7.2% between 2012 and 2015.
2. ONLINE PURCHASES FUELING USE OF CREDIT CARDS
Online purchases have contributed greatly to the rising use of credit cards as opposed to debit cards. About 48 percent of consumers in the United States prefer to use credit cards while 47 percent prefer debit cards and PayPal. More importantly, another study has indicated that online banking and digital payment are phasing out the use of both credit and debit cards. Chores that were initially done by the debit cards like transferring money and depositing checks are now handled by banking apps and websites. The rising use of payment apps like Apple Pay and Venmo which allow users to transact using their smartphones have also contributed to the decrease in the use of debit cards. There is an expectation that Mobile payments will further cause a drop in the use of debit cards.
3. ALTHOUGH CREDIT CARDS ARE POPULAR, IT IS STILL A TIGHT RACE
American consumers prefer to use credit cards when making payments. However, Millennials and Gen Z still reach for a debit card more often than a credit card when making purchases. About 40 percent of younger Millennials, those between the ages of 23 and 30, prefer using their debit card when making payments, regardless of the size of purchase, compared to 26% who prefer to use their credit cards. Most Hispanic consumers of all ages prefer to make their payments with debit cards compared to credit cards. Consumers who stick to debit cards do so because of a number of benefits for paying using the debit card. These benefits include financial control, reduced risk of running into debt, and the fact that it's easier to acquire a debit card than a credit card. A study by Mintel shows that consumers are wary not to fall into debt, and 64% agree that debit cards are a good option to avoid debt. Although many consumers who use debit cards do so for the purposes of controlling spending, the need to build credit and te desire to earn redeemable points from daily shopping can lead people to go for credit cards.