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Operations
reported by MasterCard Worldwide August 1, 2010
Debit spend and growth are highly correlated with FICO® scores. Third-party research suggest that consumers with lower scores use debit more often, but debit use among consumers with higher scores is growing more rapidly. Likewise, consumers with subprime credit scores (below 650) use debit an average of 28 times per month for a total spend of $860. These numbers fall to 11 uses and total spend of $324 per month for consumers with superprime credit scores (above 720). ¹
The share of total card spend is correlated similarly; debit makes up 73% of total card spend for subprime users, but only 28% for superprime. This is not surprising, given the greater difficulty consumers with lower credit ratings have gaining access to credit.
However, debit’s appeal is growing across the spectrum. Growth is strongest among prime users, for whom the average number of monthly transactions increased 17% year over year in the fourth quarter of 2009 ¹. MasterCard analysis indicates that most growth in debit is coming at the expense of cash and checks. ²
The picture is similar when analyzed by income. Debit usage peaks in the middle income bands ($40,000 - $70,000 in household income) and is lower among consumers with both lower and higher income. ¹
1. Expand Usage Among Prime and Superprime Consumers. Focus marketing efforts to consumers with higher credit scores on merchant categories where low-value purchases are common and where cash is still the leading payment method: convenience stores, entertainment (movies/theaters), fast food restaurants, dollar stores, and taxi fares. In most of these merchant categories, debit penetration is increasing at double-digit rates, indicating that consumers are likely to be receptive to investments in this area. ³
2. Appeal to Consumers with Lower Credit. Those with lower credit have already discovered the value of debit as a payment method. Increase usage among this segment by encouraging merchant category expansion and use for higher-value items as well. Financial institutions can stand out with this segment by offering positive customer service experiences to consumers who are likely accustomed to having few options for financial products.
3. Increase Flexibility at Point of Sale. Financial institutions can offer “split tender” options for consumers who wish to use their debit cards, but who do not have sufficient funds. Instead of rejecting an entire transaction, debit card issuers can inform merchants of remaining funds available and enable consumers to reduce the purchase or complete the transaction with another payment method.
[1] Lightspeed Research, 4Q 2009
[2] MasterCard proprietary research, 2010
[3] MasterCard Debit Awareness and Usage Study conducted by AB