Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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July 12, 2018
Behind the Growth in Debit Card Payments
U.S. consumers make more payments with nonprepaid debit cards than with other types of cards (credit and prepaid) combined. The 2016 Federal Reserve Payments Study found that consumers made 57.5 billion payments in 2015 using nonprepaid debit cards.
That's a 26 percent increase over 2012, when consumers made 45.7 billion nonprepaid debit card payments.
No doubt, effects of more favorable economic conditions—including declining unemployment, increasing wages, and greater consumer confidence—were important factors in increased consumer spending from 2012 to 2015. But from a payment choice perspective, such as which method or card to use, what might be driving this increase of almost 12 billion? Two factors related to those choices could be at play:
- Maybe people started using the cards more intensively. That is, people who owned nonprepaid debit cards started using them more often, making more payments per card per month.
- Maybe people started using the cards more extensively. That is, more people owned and actively used a nonprepaid debit card or more people owned and actively used multiple cards.
For this discussion, an "active" card is defined to be one that is not expired and had purchase activity or bill pay associated with the card during at least one month of the year 2015 or, for the 2012 estimate, at least one transaction during the month of March 2013. Note that the difference between the 2012 and 2015 estimates could, in part, be related to the different definitions of the measurement periods. (The Federal Reserve Payments Study also measures nonprepaid debit, credit, and prepaid cards that are in circulation but not used.)
Let's look at the numbers:
- In 2012, there were 173.9 million active consumer nonprepaid debit cards in circulation. These cards are linked to a transaction account at a financial institution and can be used to make purchases at the point of sale.
- In 2015, there were 209.6 million active consumer nonprepaid debit cards. That's an increase of 21 percent over the three years.
- In 2012, U.S. consumers made 21.9 purchases per month per active nonprepaid debit card. In 2015, on average, across the months, they made 22.8 per card. That's almost flat—an increase of just four percent in the number of payments per card per month over three years.
These numbers overall tell us that increases in payments per card is not the main driver of this phenomenal increase in the number of nonprepaid debit card payments (see the chart). Note that payments per card is an average of various behaviors. Some people could be using their cards more—for example, new debit card owners may be moving from using cash or prepaid cards. Others could be using their cards less—for example, new owners of credit cards may be moving away from debit cards.
Rather, the increased number of active cards seems to be the source of the jump in the number of nonprepaid debit card payments. Here are some factors that could relate to the greater numbers of cards:
- The U.S. population ages 18 and older grew from 240 million to 247 million during this time, a three percent increase (American FactFinder search).
- The percentage share of consumers with a bank account (and thus able to own a nonprepaid debit card) increased from 91.8 percent in 2011 to 93 percent in 2015 (FDIC Survey of Banked and Unbanked Consumers [2012 estimate not available]).
- By birth year, the share of people more likely to own a debit card increased. Young people born between 1995 and 1997 turned 18 between 2012 and 2015—about 14 million of them (American FactFinder search). At the same time, the population of people born before 1940 declined by about 4 million between 2012 and 2015.
Whatever the source of the increase in the number of cards, we see here that typical behavior for an active nonprepaid debt card is around 23 purchases per month. How many times per month do you use your card or cards?
By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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