Debit Card Use Wavers as Cash Stages Comeback: Survey

Consumers may be returning to the simplicity of paying with cash, and wavering on the use of debit cards, as new regulations have created a confusing purchasing environment.
A report by Javelin Strategy & Research finds that new regulations on so-called “swipe fees” – the fee banks charge merchants for debit card transactions – is a primary factor for the confusion.
Cash is the most regularly used payment option with 79 percent of 3,200 consumers surveyed having made a cash purchase within the past seven days. In comparison, about 65 percent of credit and debit card holders say they used plastic in the last week.
Javelin’s report examines how the Durbin Amendment, which reduced the fees banks can charge merchants, has changed purchasing habits since the reform took effect last October.
The biggest banks lost a significant revenue stream as a result of Durbin – an estimated combined $12.2 billion. Banks are reacting by steering consumers toward more profitable credit cards.
Last fall, the banks stumbled in their strategies by attempting to initiate debit card monthly fees. Bank of America proposed – then rescinded – a $5 a month card fee after a widespread and heavily publicized consumer revolt. Other big banks followed suit, abandoning similar plans.
Javelin found that big banks took a “big public relations hit in the last quarter of 2011 when they lost the opportunity to educate their customers” about the new regulations.
As a result, 70 percent of consumers believe that Durbin regulations will actually benefit banks, while only 30 percent believe that the regulations will benefit merchants.
“Consumers love their debit cards, but the majority would choose different payment options if they were charged a fee for using debit,” said Beth Robertson, Director of Payments Research at Javelin.
Javelin data shows that if banks were to implement debit card fees, 32 percent of consumers would choose cash as their payment option, 25 percent would pay with a credit card and 26 percent would switch to another bank that didn’t charge for debit cards, Robertson said.
“Banks should improve their messaging and educate consumers about new regulations so consumers can understand the effects of their payments choices,” Robertson said.
Adding to consumer’s confusion over debit cards the response of small-ticket merchants to the Durbin regulations.
Some have seen their costs for debit card acceptance rise significantly, and these merchants often encourage the use of cash or other payment options rather than more costly debit cards, Javelin reported.
“As a result, consumers are facing a bewildering onslaught of mixed messages about which payment option to use,” Javelin concluded.

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