It is interesting seeing the evolution of payments consumers prefer to use change over the years. At one time, cash was king before checks became the preferred mode of purchase. Credit cards then became all the rage for large purchases. Finally, the debit card emerged as a preferred means of buying goods and services. While debit card users tend to spend on average about $35-$40, it leaves room to wonder why not use it for smaller purchases? Financial institutions (FIs), as well as consumers, can actually find many benefits switching from cash to a debit card for small ticket purchases.
For consumers, debit cards just make sense. While cash is easy to use, when it’s available on hand, debit cards offer more simplicity and convenience. Carrying cash requires frequent trips to the bank or ATMs, which can sometimes take consumers far afield from their shopping destinations. Using the debit card saves time by eliminating the need for the trip altogether, not to mention preventing fees incurred when withdrawing cash from ATMs not in their issuing bank’s ATM network. Also, using cash robs consumers of the opportunity to amass rewards points that only come to them from using the debit card. In the end, pulling the debit card out of the wallet or purse is just as easy as pulling out cash. In fact, it takes up less room and eliminates fumbling at the register to count cash.
Why is it beneficial for financial institution’s consumers to use their debit cards for small ticket purchases? The answer is quite simple. Financial institutions that move their consumers from cash to plastic will generate more revenue. Given the current interchange rate acquiring FIs pay, issuers make money every time a consumer swipes the debit card. When a consumer reaches for the dollar rather than the debit card for small purchases, the issuing bank loses money. Encouraging consumers to pay using a debit card and increasing the number of swipes is clearly in their best interests. This is true no matter how much or how little the dollars involved.
The financial services industry as a whole is moving away from cash and toward increased use of plastic, and a big motivator in this shift is card security. A tremendous amount of time is being spent on improving security for debit cards, and the interchange rate is one way of recouping that investment.
Consumers seem to have a stigma of using debit cards for minimal purchases. However, there is a paradigm shift occurring and the consumer base is warming up to the idea of performing small ticket transactions with their debit card versus using cash. Retailers have helped push this by expanding the number of ways in which consumers have access to their products and services. For instance, Apple’s iTunes and the ubiquitous Redbox video kiosks both require card use for products that cost very little. Paying highway tolls and parking meters with a debit card is also on the rise. With more options to using debit cards only to pay for small cost items, it’s become easier for consumers to leave their cash at home and opt for plastic instead.
Slowly but surely, consumers are making that desired shift away from the stereotyped idea that cash for small ticket purchases is better than their handy debit card. FIS offers our partners analytics-based products that can be tied in with your existing marketing programs. It is just one of many ways we are doing our part to help change the consumer mindset. To ensure success, though, we all need to do everything we can to push the idea that, when it comes to small ticket purchases, the debit card beats cash every time.