Posted by: Odysseas Papadimitriou

The payments landscape has evolved significantly in recent years, with regulatory changes and technological advances creating a number of interesting dynamics that affect a consumer’s choice of spending vehicle.

For starters, the Durbin Amendment robbed banks of $8.4 billion in annual revenue by capping debit card swipe fees.  Banks have, in turn, eliminated most of their debit card rewards programs and emphasized unregulated products like prepaid cards – the fastest-growing form of electronic payment from 2006 to 2012, according to the Federal Reserve.  They’ve also deemphasized brick-and-mortar branches in favor of less-costly online accounts.

The credit card market has undergone a great deal of upheaval as well, with underhanded, predatory issuer practices necessitating the passage of significant pro-consumer legislation:  the Credit CARD Act of 2009.  Issuers have since focused most of their efforts on attracting consumers with above-average credit standing, creating something of a competition vacuum at the low end of the credit spectrum.

What results in an environment in which consumers are exploring a number of different options to meet their spending, payment, and everyday banking needs.  As such, debit and prepaid card market penetrating reveals a great deal about consumer habits and the payment industry’s hierarchy.

Debit Cards

U.S. Debit Card Circulation (in millions)

	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
MasterCard	113	124	123	123	133	143	157	178	185	184
VISA	321	333	394	419	407	416	439	470	473	496
Total	434	457	517	542	540	559	596	646	658	680

(Source: SEC filings from VISA and MasterCard)

(Source: SEC filings from Visa and MasterCard)

• Almost half of the consumers that have both credit and debit cards have reported a shift in payment habits in the last two years, an ever increasing number being toward debit cards. According to the data provided by the 2012 Oliver Wyman survey of consumer preferences, over 26% of the consumers that have both types of cards increased their reliance on their debit cards while 23% are using more credit cards. Over 89% of the consumers that have shifted to debit cards argue their choice by the need to be more financially responsible. (Source: Oliver Wyman, “Consumer payment preferences: Debit spotlight, Insights from the 2012 Oliver Wyman Survey of Consumer Finances”, 2013)

• The use of debit cards has increased over the last years, 77% of the consumers reporting having a debit card while 67% use it for at least one transaction monthly. These numbers are close to the ones registered for credit cards, in which case 82% of consumers have reported having one and 81 were using it at least once a month. (Source: Oliver Wyman, “Consumer payment preferences: Debit spotlight, Insights from the 2012 Oliver Wyman Survey of Consumer Finances”, 2013)

• Debit cards appeal especially to the young demographic, with 55% of total heavy debit card users (person who conducts more than 75% of their monthly transactions using a debit card) being under 45 years old, while only 12% are 65 or older. (Source: Oliver Wyman, “Consumer payment preferences: Debit spotlight, Insights from the 2012 Oliver Wyman Survey of Consumer Finances”, 2013)

Prepaid Cards

Amount Loaded onto U.S. Prepaid Cards by Year (in billions)

	2009	2010	2011	2012	2013 (projected)	2014 (projected)
Total (in Billions)	$28.6	$42.9	$57.0	$76.7	$117.0	$167.0
Change from Prior Yr.	N/A	50.0%	33.0%	34.6%	52.5%	42.7%

*Note: Figures for 2013 and beyond are projections (Source: Mercator Advisory Group)

• The number of prepaid card transactions increased nearly 19% from 2006 to 2012, making prepaid cards the fastest growing form of electronic payments during that time period.(Source:  Federal Reserve Financial Services, "2013 Federal Reserve Payments Study," July 2014)
• The number of prepaid card transactions increased nearly 19% per year from 2006 to 2012. According to a study undertaken by Aite Group, the estimated US 2013 prepaid debit card market will total $67.5 billion, while VISA estimates that the global market for these cards will top $3.5 trillion.(Source:  Federal Reserve Financial Services, "2013 Federal Reserve Payments Study," July 2014; Aite Group Study and Visa, “Visa Bill Pay Insights”, September 2013)

• According to a report by Mercator Advisory Group, in 2014 the usage of prepaid cards in US is on the rise. 56% of consumers surveyed have bought a prepaid card in the preceding year, a strong increase from the 47% registered in the 2012 survey conducted by the same organization.(Source: Mercator Advisory Group, “Consumers and Prepaid: Rising Use, Especially by Mobile”, 2014)

• According to Credit Union Magazine, Generation Y (which has approximately 77 million members in the US) prefers prepaid cards over credit cards. This behavior can be attributed to the increased concern of this generation for financial responsibility and budgeting. Also, coming of age during an economic recession has made this generation more financially conservative and more prone to debt avoidance. This has translated into an increase of prepaid cards usage, a trend that is expected to continue in the foreseeable future.(Source:  Credit Union Magazine, 2012)

• The 7 million prepaid cards in circulation as of May 2012 was more than double the amount in circulation in 2009.(Source: Businessweek, "Washington Takes Aim at the Hottest Debit Card Around," May 2012)

• Most prepaid cards charge between 7 and 15 different fees, with the median fees ranging from $0.50 to $9.95(Source:  Pew Charitable Trusts, "Loaded with Uncertainty:  Are Prepaid Cards a Smart Alternative to Checking Accounts?" Sept. 2012)

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