"More and more consumers are substituting card-based payments in place of cash," said Ajay Nagarkatte, managing director of BAI Research. "Of those who have reduced their cash use, 97 percent are shifting to credit, debit, or gift/prepaid cards instead."
Credit Cards
Consumers carry an average of four credit cards in their wallets. However, only 2.2 of those cards are used to make purchases in any given month, underscoring how competitive the credit card market has become. Study findings reflected the consolidation that has occurred in the credit card industry, with 75 percent of consumers’ Visa and MasterCard credit cards coming from 10 issuers.
According to the study, nearly half of all active cardholders revolve at least a portion of their total credit card balance each month. Although a slight majority of cardholders (54 percent) reported they pay all credit card balances in full, 46 percent carry a balance on one or more cards.
A significant driver of credit card use is rewards programs. More than 75 percent of cardholders report having rewards attached to at least one card. Overall, 58 percent of cards earn rewards. For 51 percent of rewards cardholders, rewards have a strong impact on their use of the card.
Debit Cards
Debit cards have enjoyed phenomenal growth over the past few years, and according to the study, signature and PIN debit now account for a combined 37 percent of consumers’ in-store payments. PIN debit is preferred by 45 percent of consumers, while 35 percent prefer signature (20 percent have no preference). Those preferring PIN debit consider it more secure, faster, and easier to use than signature. Consumers preferring signature debit do so for the security, lack of fees, their inability to remember a PIN, and, in some cases, rewards programs.
Gift/Prepaid Cards
Growth of gift/prepaid cards was not as robust as some analysts anticipated. Gift/prepaid cards accounted for only four percent of consumers’ in-store purchases, the same as in 2005. Study findings suggest, however, that the market for open-loop gift/prepaid cards is increasing. Retailer-specific cards continue to dominate the gift card space, but more than twice as many gift card purchasers/receivers bought or were given a general purpose gift card in 2008 as were in 2005.
"Today’s card-based payments have done much to erode the base of paper transactions in the U.S.," said Chris Allen, director, Consulting Services, Financial Services Practice at Hitachi Consulting. "And emerging payment methods like contactless and mobile are likely to take it further still."
