More Debit Spending & What it Means for Banks, Merchants & Customers

marketing tips

Debit cards have been around for decades. And though they don’t spark as much hype as credit cards, they remain popular.

Over time, the trend is toward debit cards. This means that consumers are increasingly using debit cards instead of credit cards to make payments

The Statistics: Debit Versus Credit Spending

In the United States, debit card usage is on the rise. In 2018, Americans paid with debit cards twice as much as they did with credit cards, according to a study by the Federal Reserve Payments Study.

However, the total worth of credit card payments exceeded that of debit cards by 30 percent. For some time now, consumers have been using their debit cards more frequently than ever before; however, they’ve been spending less per transaction than they do on credit card transactions.

In December 2020, however, Visa reported $741 billion in debit card payment volume and $542 billion in credit card payment volume.

The U.S. Consumer Finance also revealed a gradual drop in the average credit card balances amid the global health pandemic. This drop was likely fueled by the stimulus checks, which consumers used to settle debts.

The Durbin Amendment

Though the ongoing debit rise hit climax amid the global health pandemic, the signs began earlier. Slowly, debit was growing fueled by several forces including the Durbin Amendment.

The Durbin Amendment is a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It requires a cap on interchange fees that banks charge to process debit card transactions.

The amendment was proposed by Senator Dick Durbin (D-IL) and introduced as S. Amdt. 1519 to S. Amdt. 1515 (H.R. 4173). It passed in the Senate by a vote of 56–43 as an amendment on October 1, 2010, during the debate over financial regulatory reform legislation (which became law on July 21, 2010).

The amendment also required that the Federal Reserve Board study the effects of interchange fees on competition among financial institutions, merchants and consumers.

The amendment was controversial because it imposed price controls on interchange fees charged by both MasterCard Incorporated and Visa Incorporated.

Interchange fees are the charges merchants pay when consumers use their debit cards for purchases. Interchange fees are set by Visa and MasterCard; they are paid by merchants to banks for processing debit card transactions.

What it Means for Merchants and Banks

This means that merchants are getting significantly less money from banks for accepting debit cards. This has led to some merchants adding surcharges to their products, which is not allowed according to the Durbin Amendment.

In addition, banks have responded by charging their customers more for debit cards and cutting back on rewards programs.

While these changes are frustrating for consumers, they are ultimately good for both the merchant and consumer because they make the payment process more transparent and prevent banks from abusing their power in the market.

Author bio

Content crafter Alex Wilmont has been active in the payments industry for over 15 years. He lives simply, gives generously and loves his 2 dogs. His mission is to help businesses with marketing tips and innovate the fintech industry for years to come.