There is no letting down in the popularity of debit cards. So much so that by next year more than half of debit card issuers will have a rewards program. And, in another six years, debit card transactions will account for nearly 60 percent of all purchases.
These are some of the findings issued by the TowerGroup, a financial industry research and advisory firm.
TowerGroup attibutes the debit card popularity to changing consumer behavior that is focusing on tighter household financial management. At the same time, card issuers continue cautious lending strategies and more reliance on debit cards as tighter credit card laws are poised to take effect in early 2010. Debit card offers are considered “an outstanding launch point for financial institutions” as part of cross-selling strategies.
“The debit card market showed steady growth since its inception, but it is now the “top-of-wallet” card for American consumers as a result of tightened credit lines and consumer frugality in the face of an uncertain economic future,” said Brian Riley, Research Director for Bank Cards at TowerGroup.
TowerGroup is recommending that card issuers adapt to their marketing strategies to fit the growing popularity of debit cards among consumers. In addition to debit rewards programs, card issuers will benefit from “cross-selling additional products such as credit cards, investments and mortgages to their debit card customer pool.”
Using a debit card is a good way of avoiding mounting credit debt, but too much reliance on debit cards can be a dangerous habit.
Here are a few tips in the Debit versus Credit debate:
Focus on Fees
Don’t get distracted by attractive rewards. Find out the policy on check clearance, and overdraft fees. You may not have to worry about interest rates, but fees can be costly without overdraft protection or careful monitoring of your finances.
Weigh the Safety Issue
Debit cards are not as safe as credit cards. They are usually tied to your checking accounts, and if the card is stolen, and your bank accounts are exposed to identity thiefs, the financial damage could be catastrophic – at least until your bank replaces the funds.
Caution on Rewards Program
The debit card reward programs could entail cash-back rewards, point-earners with retailers, or travel-related perks. But debit card reward programs are often not as rewarding as their credit card counterparts. Make careful comparisons.
