Debit Cards Surpass Credit Cards as Most Popular POS Payment Method

Consumers favor their debit cards over any other card they carry, according to a survey of 6,500 consumers by Edgar, Dunn & Company.

"Nearly 40 percent of Americans say they prefer to grab their debit card out of their wallet when making a purchase," said F. Alan Schultheis, a director of

The survey, PaymentDynamics 2004 Preferred Card Survey, conducted in late 2003, also found that 36 percent of respondents prefer standard credit cards, down from 57 percent in 1999; 33 percent prefer co-brand cards, up from 25 percent in 1999; and 25 percent prefer loyalty cards, up from 10 percent in 1999. There are no historical numbers on debit cards from the 1999 study because, at the time, debit cards were not widely used for purchases.

Rewards-such as airline miles and theme-park visits-are strong motivations behind changes in preference. Six out of 10 respondents chose rewards-based cards as their preferred credit card, said the survey.

Debit cards have not traditionally offered rewards, but that is changing, Schultheis said. These incentives include rewards that are redeemable within the bank, including rewards built around mortgages, CDs, and other bank products. Less than 20 percent of debit cards currently offer rewards, Schultheis said.

According to a survey released by Financial Insights, 2003 was the first year when debit cards surpassed credit cards, in terms of total transactions. And debit cards are poised for even further growth, said the Framingham, Mass.-based research and consulting firm.

By 2007, debit cards will account for almost 68 percent of all point-of-sale payment card transactions, said the report. This includes 24.9 billion debit card transactions that use a PIN number for authentication and 12.5 billion that use a signature. Credit cards are expected to make up the final 17.8 billion transactions.

Commonly referred to as online debit, because the account is debited immediately, PIN-based debit accounted for 22 percent of all transactions in 2003. Over the next three years, the payment form will grow at an annual rate of more than 35 percent, while signature-based transactions will grow much slower, according to the report.

Online debit can be expected to continue growing chiefly because PIN-based transactions are likely to remain less expensive than signature-based, Financial Insights said.