Next-Gen Debit Steps Up

Advances in mobile banking apps have taught financial institutions (FIs) that people desire more control over their money – in their hands, on their phones and with their apps. But that convenience is secondary to the other thing FIs are learning about debit: People today prefer it to credit.

“At the start of the pandemic, consumer behavior shifted very quickly, resulting in many … transactions shifting online,” Jennifer Schroeder, executive vice president of product management at PULSE, told PYMNTS. “We saw a dramatic increase in card-not-present (CNP) debit transactions across grocery [and] big-box retailers, quick-service restaurants (QSRs) and online bill pay. We expect some of this to persist, especially in grocery [stores] and restaurants, where the benefits tap into other macro trends that were taking hold prior to the pandemic.”

In the July 2020 Next-Gen Debit Tracker® done in collaboration with PULSE, A Discover company, these trends are covered in-depth as companies tap into positive consumer sentiment around debit to help fuel a recovery by reviving spending without debt.

A Faster Form of Relief

Demonstrating debit’s draw, it is the primary method most governments are using to disburse COVID-19 relief monies to millions of Americans who became unemployed this past spring.

“The Treasury Department announced on May 18 that it would begin mailing preloaded debit cards to millions of individuals who had been waiting for checks, potentially sparing households from settlement delays and check cashers’ fees,” the new Tracker states.

“Consumers could instead begin activating and using cards immediately after receiving them in the mail. The government said EIP cards can be used without fees when making withdrawals at in-network ATMs, making purchases at many merchants or transferring funds off the cards and into their bank accounts. Cardholders get one free out-of-network ATM withdrawal, after which they will be charged $2 per instance, which means they are not entirely free to use but are likely cheaper than check cashing in most states.”

While far from real-time or instant money, the provision of debit cards for automatic loading of funds is seen as one of the smartest pandemic fixes, though the rollout itself got low marks.

Debit Dawns Anew

Using debit cards versus paper checks to disburse government aid money is no contest, in truth, yet much of the money machinery is still based on spitting out paper checks and mailing them.

But no person who found themselves unemployed and fearing COVID-19 wanted to touch their mail, much less go cash a paper check anywhere – hence the move to debit. It’s been paying off, so to speak, as spending is spurred and cash-strapped consumers can access funds faster.

Perhaps the most promising thing to come of it are the future uses of debit that are being revealed as a result of the pandemic response, and the key learnings taken from it.

“We consider grocery [stores] and restaurants to be the model for a much broader application of pre-pay and pickup/delivery among a meaningful and growing variety of merchants,” PULSE’s Schroeder said.

“We’re already seeing adoption of this approach in categories such as automotive parts and accessories, electronics and pet food and supplies, and we expect debit in these categories will continue to perform well,” he continued. “Finally, we anticipate ongoing growth in debit as consumers settle into the new normal.”