Financial Tech

Part
01
of four
Part
01

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.

methodology

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.

findings

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.

Part
02
of four
Part
02

Credit Card Features

U.S. millennials are attracted by credit cards offering easily accessible value, lucrative sign-up bonuses, travel rewards, and credit-building features. We only considered and included findings from U.S.-specific reports and research. Below is an overview of our findings.

Findings

Accessible Value

According to Forbes, millennials are attracted to value features such as minimal annual fees and rewards - but only if they are easily redeemable. This is because consumers tend to redeem their rewards regularly and "ease of redemption drives higher redemption rates." According to a report commissioned by CardRatings, 36% of millennials redeem their credit card rewards as soon as possible with 27% reporting a preference for cards with instant rewards and automatic rewards redemption features.

Sign-up Bonuses

According to a study by LendEDU, about 39% of millennials reported that a sign-up bonus incentivized them to open a credit card. Another research states that about 36% of milennials say that an extravagant sign-up bonus of about $500 cash is more attractive than cash back and zero-percent interest rates. Additionally, over one-third of millennials, compared to 22% of the older generations, consider a "lucrative sign-up bonus" as the most appealing feature for a credit card.

Travel Rewards

According to PaymentsJournal, 90% of the 5.8 million discussions about credit cards by millennials in the past decade involve travel points. Travel points have dominated credit card points discussions probably because about 57% of millennials have taken a trip recently that included hotel accommodation or a flight. Millennials are enticed by both travel rewards and travel sign-up bonuses.

Credit Scores

The LendEDU research reports that almost 70% of millennials sign up for credit cards to build credit history. According to Hitwise, 59% of the 56% of undergraduate millennials who own a credit card use it for credit building purposes. Younger millennials, especially, are 24% more likely than their older peers to search for information on credit score, which might mean that they would be the most attracted to credit cards with this feature.
Part
03
of four
Part
03

Traditional Banking Versus Alternatives

After an in-depth search, we have provided some trends around people opting for traditional banking alternatives in the United States. People in the United States are opting for cryptocurrency accounts, global payment solutions that offer virtual bank accounts, and mobile-only bank accounts. These alternatives include Orbis Transfer, Payoneer, Simple, Chime, and Varo.

RESEARCH STRATEGY

We began the research by looking for alternatives to traditional banking and we found much information implying that online banking was the right option. However, online banking was not the focus of our analysis, so we broadened the search and investigated websites such as Forbes. Forbes is an American business magazine that publishes original articles on finance, industry, investing, technology, and marketing, among other topics. In this magazine, we found a list of the "Best Fintech Alternatives to Traditional Banking" which gave us insight into the subject matter. Forbes explained, "'Fintech' (financial technology) is a technology that concentrates on competing with traditional financial methods in the delivery of financial services." From the Forbes publication, we only discussed those companies that provide more exciting services to clients by differentiating themselves from the competitive market. We also thought of some often used alternatives in the market such as Payoneer and Orbis Transfer. Finally, we selected those alternatives that offer innovative services that challenge traditional banking.

ORBIS TRANSFER

Orbis is an alternative to traditional banks because it operates with cryptocurrency. Orbis has software that permits customers to perform transactions that are secure and cost-free. These transactions are conducted worldwide and the network is decentralized. The mission of Orbis Transfer is to provide its customers with automatic and decentralized services. It also prevents fraud and human error from occurring as it does not employ humans. Instead, chatbots assist customers. Products and services of Orbis include the debit card, mobile app, and desktop software. Orbis is planning to provide a walk-in branch very soon.

PAYONEER

Payoneer provides a payment solution that is global and offers a virtual bank account for customers in several countries. This provision makes customers' payments easy. Customers can use debit cards to withdraw money at ATMs worldwide at low fees. It is also possible to use the debit card to make purchases at any store that accepts MasterCard. Payoneer is an excellent alternative to traditional banking with regard to fees. It charges its clients $30 per year for account maintenance, and this charge applies only if the account has sufficient funds; otherwise, there are no charges.

SIMPLE

Simple is an excellent alternative to a traditional bank as it aims to "simplify" finance operations. It offers an online checking account. This account has numerous features, which include the absence of an overdraft fee, about 40,000 ATMs free of charge, instant notifications, earning approximately 2.02% APY, direct deposit, budgeting tools, saving tools, and many others. It has a service which helps customers to spend wisely. Simple also has a tool that determines if clients can afford what they want to purchase. It has an option to set up recurring expenses (for instance, power, cable, and internet bills) in the mobile app; this takes off the stress of making payments each month. Simple does not have any minimum balance requirements or any maintenance, overdraft, and monthly fees. Money transfers and card replacements are free.

CHIME

Chime is a good alternative to traditional banking because it does not charge fees for its checking and savings accounts. Chime offers its clients the ability to access their paychecks two days earlier than traditional banks. Traditional banks pay clients after two days because they earn interest by holding the funds for two days. Chime challenges the traditional bank market since it aims to create a mobile-only bank that does not rely on fees to make a profit.

VARO

Varo is an excellent alternative to traditional banks because of its kind of payment solutions. The payment solutions include the issuance of "Varo Visa Debit Card"; connections to Venmo and PayPal; and the addition of cards to Samsung Pay, Google Pay, and Apple Pay. This new alternative to traditional banks also enables their clients to get paid two days earlier, link external accounts, and view all funds at once. Varo challenges traditional banking through its algorithms. The algorithms calculate the customer's balance after deduction of monthly bills and predict how much they can spend for the rest of the month. The mobile app also enables customers to set and track savings goals.
Part
04
of four
Part
04

New Credit Cards

Four new credit cards that have received the most attention in the last 12 months in the US are United Explorer Mileage Plus credit card, Starwood Preferred Guest American Express Luxury Card, Southwest Rapid Rewards Priority Credit Card, and Amazon Business American Express Card.

METHODOLOGY

To identify new credit cards that have received the most attention in the last 12 months in the US, we began by searching through credible financial news reports, databases and publications such as the Wall Street Journal, Market Watch, Business Wire, Business Journal, and Business Insider for mentions of new credit cards. This strategy provided several new credit cards launched within the past year. Through further analysis of the reports and databases, we were able to build a list of four new credit cards that have received the most attention in the last 12 months in the US by selecting those that had their launch published in at least two reputable reports or publications.

1. United Explorer Mileage Plus Credit Card

Chase Card Services and United Airlines introduced the new United Explorer Mileage Plus credit card on June 01, 2018. The card offers an expanded two miles per $1 on hotel stays and restaurant purchases in addition to two miles per $1 on purchases with United, valuable travel credits, and in-flight benefits and discounts. The credit card launch was reported in Business Wire and Business Insider, among others.

2. Starwood Preferred Guest American Express Luxury Credit Card

Starwood and American Express launched a new credit card, the Starwood Preferred Guest American Express Luxury Card, in late 2018. Eligible new credit card members who applied for the card until October 31, 2018, were to receive a welcome bonus of 100,000 points for spending $5,000 after three months. The credit card launch was reported in Business Insider, Market Watch, and Payment Week, among others.

3. Southwest Rapid Rewards Priority Credit Card

In July 2018, Southwest Airlines and Chase announced the introduction of a new co-branded credit card called the Southwest Rapid Rewards Priority Credit Card. The new credit card offers 65,000 bonus points when customers spend a minimum amount in the first year of having the card which comes with an annual fee of $149. The credit card launch was reported in Business Insider and Business Journal, among others.

4. Amazon Business American Express Credit Card

In October 2018, American Express and Amazon launched a new credit card for small businesses aimed at alleviating some of the cash flow trouble faced by business owners. The card also enhances the way small businesses buy goods and services across Amazon. It offers special rewards for purchases made on Amazon.com, Amazon Business, Amazon Web Services, and at Whole Foods, and the interest rate varies between 10.99% and 18.99%. The credit card launch was reported in the Wall Street Journal, Market Watch, and Business Wire, among others.
Sources
Sources

From Part 01
Quotes
  • "A look at consumer payment data reveals that the number of debit card users is declining across the country as a growing number of households turn to credit cards and new digital banking options."
Quotes
  • "Out of 176 million credit card users, most cardholders carry a balance month to month. An April 2018 report by the American Bankers Association reveals that 44% of credit card users are revolvers, meaning they carry a balance to the next month at least once every quarter. Another 29.5% of credit card users are transactors, which means they don't carry a balance and have no financing charges. The remaining 26.5% of credit card users show no activity. "
Quotes
  • "Credit card payments registered the highest growth rate by number (10.2 percent) among the core payment types from 2015 to 2016, up from a growth rate of 8.1 percent from 2012 to 2015. Debit card payments registered the second highest growth rate by number (6.0 percent) from 2015 to 2016, but this rate was down from a growth rate of 7.2 percent from 2012 to 2015."
Quotes
  • "Credit cards are the most preferred way for US consumers to pay for purchases, especially more expensive purchases, according to Mintel’s report on payment preferences in the US. However, young consumers, including younger Millennials and Gen Z, still reach for a debit card more often than a credit card: 40% of younger Millennials, those between the ages of 23 and 30, prefer to use their debit card, regardless of the purchase size, compared to 26% who prefer to use credit. Among Hispanic consumers of all ages, the majority still prefer to pay with debit compared to credit"
Quotes
  • "Recent panel results indicate a reversal in the previously observed trend for credit card ownership post-Great Recession. In 2007, 81 percent of the panelists reported owning a credit card; however, that rate had fallen to 74 percent by 2013 and 2014 as consumers and issuers deleveraged in the aftermath of the Great Recession. Credit card ownership began to rebound in 2015 and reached 79 percent in 2017. In contrast to credit, debit ownership rose from 79 percent to 85 percent during the 2007–2013 period of credit ownership decline, but it leveled off over the last four years as credit began its rebound (Figure 2). In both cases, users of credit and debit products showed strong preferences in the survey results for those products over other payment instruments."
Quotes
  • "Consumers still opt for debit and cash most often. These options can help control spending, but they won’t help you build credit or earn rewards on everyday purchases. For that, you’ll want to turn to a credit card — but only if you can use it responsibly. No matter what your preferred payment method, it’s important to avoid spending money that you don’t have"
From Part 04
Quotes
  • "Chase Card Services, the leading co-brand credit card issuer in the U.S., and United Airlines today introduced the new UnitedSM Explorer Card. The card will now offer an expanded 2 miles per $1 on hotel stays and restaurant purchases in addition to 2 miles per $1 on purchases with United, valuable travel credits and in-flight benefits and discounts. "
Quotes
  • "United Airlines and Chase are offering a limited-time sign-up bonus on the United Explorer Card . From now until May 16, you can earn up to 60,000 United MileagePlus miles: 40,000 after you spend $2,000 in the first three months, and another 20,000 miles when you spend a total of $8,000 within the first six months."
Quotes
  • "Starwood and Amex have launched a new credit card, the Starwood Preferred Guest® American Express Luxury Card."
Quotes
  • "Southwest Airlines Co. (NYSE: LUV) introduced a new credit card that offers 65,000 bonus points if customers spend a minimum amount in the first year they have the card. The Southwest Rapid Rewards Priority Credit Card, issued by Chase, comes with an annual fee of $149."
Quotes
  • "American Express AXP, +1.02% and Amazon AMZN, -0.52% are offering a new credit card for small businesses designed to alleviate some of the cash flow problems business owners can encounter. "
Quotes
  • "American Express (NYSE: AXP) today announced plans to launch a new cobranded Amazon credit card for small businesses in the U.S. The new cobranded card will enhance the way small businesses buy goods and services across Amazon, and is part of a larger multi-year partnership."
Quotes
  • "American Express AXP, +1.02% and Marriott International, Inc. today announced that the much-anticipated, newStarwood Preferred Guest® American Express Luxury Card is now available."