Why are more consumers opting for prepaid debit cards?
Last year the popularity of the prepaid debit cards have surpassed credit card use in the US. People used their debit card over 25 billion times last year as opposed to the almost 22 billion credit card transactions. As these forms of electronic payment increased, the use of debit cards grew almost three times as fast.
However, between the average transactions between credit cards and debit cards the value or amount spent was in favor of the credit cards by far. The main difference is in the fact that a debit cardholder can only spend the amount of money that he has deposited into his account, while a credit cardholder can borrow up to his limit. Debit cards for that reason are appealing to borrowers who have a tough time controlling their spending and can not manage a credit card responsibly.
Over the last few years the amount of paper checks in use has dramatically decreased while (ACH) automatic clearing house payments have mushroomed. The definite trend is that people prefer to use electronic forms of payment because it’s easy, cost effective and convenient. Debit cards are really becoming the “go to” for making purchases at restaurants, gas stations and getting cash back at grocery and convenient stores. The fact of the matter is that consumers are using their debit cards everywhere.
This year industry analysts are predicting that there will be over five billion debit cards in use. This also means that fraud is getting more sophisticated. The bad check writing methods have now evolved into hacking financial databases and identity theft.
With debit cards you can pay in essentially two ways, you can make a PIN transaction or a (POS) point of sale transaction. From the cardholder’s perspective, there really isn’t much of a difference. However, the way that payment is processed and the cost to the merchant are much different. Merchants pay more for POS transactions then they do for a consumer who inputs their PIN. The reason for this is because POS transactions are processed on the credit card payment networks, while PIN transactions run in real time transactions and merchants get their payment usually much faster.
When the real time PIN transactions are processed, there is little no chance of becoming over drawn because the back account is immediately checked when the PIN number is submitted. As opposed to POS transactions which are not done in real time and banks will be more than happy to charge overdraft fees if the account balance is exceeded.
The credit card regulatory act in 2009 made the laws governing credit card companies much more strict. One of these regulations makes it much more difficult for people under 21 to get a credit card with having a co-signer. It also stops banks from increasing credit card interest payments without a reason.
Our last recession has pushed unemployment to nearly 10% with houses being foreclosed nationwide; people stopped spending frivolously and cut back on their credit card spending as well. These factors are the catalyst for the trend of people using debit cards over their credit cards.