Mercator Blog

U.S. Consumers Using Online Payment Services for More Than Just Online Purchases
Date: January 5, 2017
Karen Augustine
Manager, Primary Data Services
Consumers increasingly use e-commerce and m-commerce for its added convenience. The myriad of new and emerging payment methods available that they use online may be displacing the use of debit cards although debit card use remains strong according to Mercator Advisory Group’s CustomerMonitor Survey Series 2016 Payments survey, which finds that 3 in 5 participants say they use debit cards. However, fewer survey participants have said so over the past few years, particularly since the Durbin Amendment was enacted in late 2010.

Security concerns appear to hinder debit card use online and are claimed as the top reason for not using debit cards online by those who do not use debit for this purpose. Consumers are more likely to prefer using credit cards than debit cards for online purchases, though not for bill payments. Survey participants increasingly appreciate means to alleviate card security risk, for example through use of EMV chip cards and enhanced security measures, as long as they are not burdensome or intrusive. However, EMV cards prevent counterfeit card fraud at the point of sale but do not enhance security for online transactions. Yet, consumers are shifting more purchases and bill payments online and to mobile phone or tablet, taking advantage of a wider range of payment options, from online payment services to digital person-to-person payments and other alternative financial services that may be starting to displace debit card use. Rather than using their debit card, they can hold funds in these alternative payment sources, which are easily accessible by mobile devices.

Debit cards support budgeting and impose limits on spending the account balance, compared to making purchases on credit. In 2016 debit card use declined slightly, while use of alternative financial services was strong and growing. Consumers increasingly rely on cash and prepaid cards; the latter also support budgeting and spending limits. Many consumers report paying some types of fees for the use of checking accounts and debit cards, primarily monthly fees on their accounts and even individual fees charged to transactions on their checking accounts. Consumers who lack the resources to avoid those fees often seek alternative payment methods to circumvent high debit card fees. Alternative payment services from providers that are not banks or credit unions, especially online services, are becoming more attractive to them.
  
Financial institutions need to reevaluate how they market their debit card products and consider offering value-added features, such as more valuable rewards or enhanced security protection, to stimulate greater activation.

This Insight Summary Report, U.S. Consumers and Debit: Signs of Displacement, highlights opportunities for issuers to stimulate debit card usage. The report also reveals our survey findings on the changing demographics of debit card holders and debit card users, the availability of debit card rewards and its impact on use of debit cards, consumer use of cash, alternative financial services, and online payment services by platform compared to other methods. This report analyzes the survey results to understand consumers’ use of debit cards, their card preferences for online purchases by type of purchase, their reasons for not using debit card, the types of fees they pay for the use of checking, and the card features offered. We also report our findings on U.S. consumers’ interest and willingness to pay for eight value-added services as well as their interest in other measures to increase activation.