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Insight: Why Shoppers Use a Debit Card at the Supermarket

Insight: Why Shoppers Use a Debit Card at the Supermarket
Posted: Jun 22, 2016
Comments: 0
Author: Bill Lehman

When standing in front of the payment terminal at the checkout line, the payment method chosen (credit, debit, cash, PayPal, check, etc.) really depends on the location and context of the transaction. In a study of 1000 consumers who carry both a credit card and a debit card, TSYS, a leading merchant payments processor, uncovered some consumer trends which can be anecdotally witnessed when in the checkout line. When shopping at a supermarket, 50% reach first for a debit card, while only 31% reach for a credit card.

Debit cards for everyday expenses

There are probably as many reasons for this first choice as there are shoppers: there’s a widely-held feeling that one shouldn’t pay later for groceries to be eaten today; it may be habit – it wasn’t long ago we all used cash or wrote a check to buy groceries – these two sources have given way to debit usage; there’s also a general consensus that using a debit card helps a cardholder manage personal budgets for “everyday expenses” such as groceries and gas.

Credit cards for discretionary purchases

Credit cards, on the other hand, are used for discretionary purchases, such as jewelry, vacations, and Christmas shopping. This same study concurs with this mental separation as to the type of purchases – when dining out (table service restaurants), the split between credit and debit usage for payment is even at 37%, but when shopping in a department store, more shoppers reach for credit (40%) than debit (35%) proving the tilt toward credit as the spend becomes more incidental or optional. The location where credit usage is greatest – online, possibly reflecting the need for a sense of security that comes with using a credit card, especially in light of the many breaches which made headlines in recent years. And the places where cash is king? As one might expect, small dollar purchases at convenience stores and coffee shops are still dominated by cash transactions.

Many FI’s encourage usage behaviors

This bifurcation of card usage is actually encouraged on some banks’ website. One particular bank offers the advice to use your debit card “at the grocery store, for convenience, for controlling your spending”. Use your credit card “when purchasing a television, electronics, or other big ticket items…when you’re buying online…when you’re dining out.”

While some of the rationale may explain these patterns, like the example that some people are just not able to control their own credit card spending. But most of the rest of the pattern of choice of payment method defies logic. Why use a credit card at the gas pump for gas that will be used in the very next moment, but a debit card at the supermarket? Why use cash at the coffee shop which was drawn out of the same account as the debit card? And a more important question is – how can banks and credit unions convince more people to use their credit cards for every purchase: for groceries, and at the coffee shop, and at the convenience store?

There are so many advantages for the cardholder when using a Visa or MasterCard-branded credit card – zero liability for unauthorized charges; a breach will not drain the cardholder’s bank account; reward points for most cards; flexibility of payment terms. And the benefit to the issuer is greater interchange and greater likelihood of carrying balance.

Convert debit card members into credit card users

The first step is making sure your debit cardholder actually does have one of your credit cards. Look at your debit cardholders spend alongside which products that member also has, and, if other criteria are met, offer a credit card with some initial usage bonuses.

The second step is creating the behavior change. Having a rewards program for credit is a pre-requisite. Offering bonus points on 10 credit card transactions per month (regardless of dollar amount) can help get a new credit cardholder accustomed to making the credit card “top-of-wallet” even for small dollar purchases, like coffee and convenience store purchases. More sophisticated tie-ins include offering an additional quarter percent interest on savings account (for the first $500 in savings) each month that credit card usage is over $1000.

And the third step is continuing education. Remind cardholders, both new and longstanding, of the benefits of using credit cards for every purchase: building up their credit history, getting reward points, getting piece of mind with each transactions, getting monthly and end of year spending reports, purchase protection, flexibility to pay over time, and not having to carry cash around.

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