Consumers Rebalance Credit-Debit Preference As Economy Reopens

The story of debit’s dominance in the wake of the pandemic has been widely reported. Consumers concerned for their financial future developed a sudden and strong preference for the surety of debit spending and a distaste for debt.

But forthcoming data from PYMNTS and Elan demonstrates that the conventional wisdom over the last year about debit’s growing dominance may be starting to shift once again. According to the data, 41 percent of consumers prefer credit cards to pay online, making it the most commonly used payment method, and 28 percent of them have increased their online usage of credit cards since the pandemic.

Moreover, how consumers pay online is in flux. Debit and credit cards — as well as digital wallets — have seen net increases in use since the pandemic began, yet at least 10 percent of the users of each of these payment methods report using them less frequently.

It’s all indicative of consumers reconsidering their needs end to end, particularly when it comes to transacting online, Elan Senior Vice President and Head of Credit Card Product Development Chris Roncari noted in a conversation with PYMNTS and BECU Chief Credit Officer Shahzad Kazi.

“There’s a group of debit users who have already switched payment methods,” Roncari said. “We’ve seen that in the study — they’ve switched to credit and mobile wallets. And there’s a group of debit card holders who I think will continue to move away from debit and toward other payment methods. Consumers’ needs change over time, and products change over time. And we are seeing the utility of some of these alternate payment methods increasing.”

Although as Kazi noted, utility is something of a slippery concept in the modern financial services landscape because it means different things for different consumers. Affluent consumers making a lot of big-ticket purchases are more likely to be engaged by rewards offerings — their creativity, applicability and depth of value being primary considerations when choosing a wallet credit product.

Middle- and low-income consumers who are more likely to run a revolving balance are usually much more dialed into the annual percentage rate (APR) on the card and where the best value on credit is being delivered. It’s not so much about the right offer, Kazi noted, so much as it is about making the offer right for the specific customer.

“Essentially, it’s a matter of choices,” he said. “We like to give our members the choice versus steering them in one direction or the other. We offer the options, so they can pick and choose a product they feel comfortable with and use it to their best advantage.”

The inclination is to think more widely and to find the right product for the right consumer instead of simply trying to build a right product for everyone. As Roncari noted, the data is increasingly demonstrating that what we’ve understood as the “right” set of financial services for consumers is ever shifting and updating.

When looking at things like installment lending products, for example, they are suddenly everywhere in the market and are looking like a solution that will become a core feature in consumer financial offerings.

Rewards are also becoming an increasingly innovative zone, he pointed out, as more firms are realizing that simply throwing some points at customers isn’t enough of a compelling value proposition.

“Programs are using artificial intelligence to maximize rewards based on actual spend patterns,” Roncari said. “And on the redemption side, there are a lot of interesting things happening to create the ability to provide greater utility for points or cash. It used to be enough to just allow points to be cashed in for cash back, statement credits, merchandise or travel gift cards.

“Now, we’re starting to see additional redemption options for charities and social causes, the ability to use points to pay down student loan debt, potentially pay your rent or your mortgage, or even to redeem points for cryptocurrency like bitcoin.”

The point, he said, is to give rewards holders the flexibility to put them to the use of their choice because providing for consumer choice and customization is ultimately the path forward for financial services. As Roncari and Kazi agreed, the end game — for both the consumer and the financial institution — is ease and simplicity in choice. And the specific choice isn’t necessarily the most important point; credit, debit and mobile wallet will all speak differently to different consumer groups at any given moment.

The path isn’t trying to build to one right answer, but to build widely enough, and with enough choice embedded that the customer can be the essential driver of their own financial services adventure.

“As members become more and more aware of what is out there, then clearly their expectations rise, and that’s what we strive to meet,” Kazi said. “We have to be ahead of that curve and be there before the member actually starts asking for something. So, we try and make sure that we’re abreast of what’s going on, and we try to exceed expectations before we actually see that demand.”