Under periods of economic recession, it is not unusual to see consumers use credit cards less and place more purchases on their debit cards. While the siren’s song of credit card rewards is tempting, consumers get pretty pragmatic in times like these. In a MarketWatch article, Visa believes the shift to equal around $100 Billion annually:
The COVID-19 crisis is pushing more purchasing over to debit cards in what could drive a $100 billion annual shift away from credit cards over time, according to Visa Inc.
While U.S. credit-card volume on Visa cards remained down from a year earlier in May, debit-card volumes were up 12% last month, the company disclosed in a Monday-afternoon filing.
“There’s a consumer psyche of sort of not spending someone else’s money but spending my own money,” said Oliver Jenkyn, Visa’s executive vice president for North America, at Baird’s Global Consumer, Tech & Services Conference on Wednesday.
Visa estimates, based on past behaviors, that there could be a $100 billion annual shift to debit-card spending from credit-card spending over time, Jenkyn said. Consumers migrated spending to debit from credit in 2008, he noted, and even in late 2018 amid uncertainties around a government shutdown and trade tensions with China.
In the medium and long term, he expects more purchasing to migrate over to debit cards
Visa did release recent card transaction volume in their 8-K filing on Monday disclosing that U.S. debit volumes were up 4% in 1st quarter. If this release follows their quarterly filings, then it should be noted that this number may also include prepaid cards inclusive of those used to disburse unemployment benefits and economic impact payment which are clearly up. It also includes push payments which are sometimes used to facilitate P2P transactions which are also increasing.
Overview provided by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group.