The passage of new credit card legislation may accelerate the growth of debit card spending, at the expense of credit card.
To date, debit card’s growing share of payments has mainly been at the expense of cash and checks. However, the next stage of debit cards growth may eat into credit cards’ share.
Even before the passage of new credit card legislation, data from MasterCard and Visa indicated continued growth in U.S. debit card spend and a marked reduction in U.S. credit card spend. One of the potential outcomes of the new legislation is the re-introduction of annual fees, even for transactors (cardholders who pay their balance in full each month). These transactors may now switch a portion of this credit card spending to credit to their debit cards.
This switch to debit card is being facilitated by the increased proliferation of debit card rewards programs, in particular merchant-funded programs. Merchants have a vested interest in consumers switching to debit card, as they pay lower merchant fees on debit card transactions.
Another impact of the legislation may be a reduction in the average number of credit cards held by consumers. This will lead to greater spending on the retained credit cards, but also some switch in spending to debit card.