Debit and Credit Usage Stage Friendly Battle For Holiday Spend

After the year we’ve seen so far, uncertainty is probably just about the last thing the retail segment wants as a holiday present for 2020. But the good news is that as the season spins up, there are glimmers of hope for a better future on the horizon, Randy Piatt, Ondot Systems’ head of product solutions, recently told PYMNTS. He said the trouble is that the horizon is still pretty out of reach – and only dimly visible.

“[I believe there] is a light at the end of the tunnel here,” Piatt said. “We’ve had some great news about vaccines recently, but we’re also seeing some spikes in the COVID numbers, and there has been a definite shift toward trying to find the safest way to shop.”

Judging by Ondot’s data from a recently conducted consumer survey, that means holiday shopping is going to be online and on mobile to a degree never before seen. Piatt said those are figures align nicely with recently released National Retail Federation (NRF) data indicating that 39 percent of holiday shopping will happen online this season.

The fact that this will be a very different – and very digital – holiday season is a certainty that both merchants and issuers can carry with them into the season. And with that certainty come some hints on how to navigate that landscape during the holiday season and into 2021.

Some things Piatt sees:

‘Tis The Season For Debit Shopping So Far, But Will It Stick? 

Stay-at-home orders that shuttered businesses and prompted layoffs sent consumers running from credit products and toward a strong preference for debit.

Piatt said a sudden spike in concerns about finances pushed consumers to appreciate the kind of spending control that debit offers.

“COVID-19 has driven people to be a bit more cautious with their spend, and we saw that credit card spend was way down pretty much for most of the year,” he said. “I think Visa predicted a $100 billion shift this year, and that has certainly been the trend.”

But whether that trend will stick around is harder to predict, Piatt said. Given the unfortunate realities that COVID-19 has created in the economy, there is no shortage of consumers who might still feel inclined to use debit as a better mechanism to control their spending.

But then again, he said that consumers who have been locked down for almost all year might feel pressure to put on a particularly nice Christmas, and might be more inclined to switch over to credit to finance their holiday purchases. Plus, he noted that debit still faces many hurdles in a highly digitized environment.

Piatt said credit card products are better known for transparency around spend. For instance, it’s much easier for consumers to understand exactly where their spend flowed by looking at their monthly credit card statements.

In a world of card-not-present purchases – where consumers often never set foot inside stores – Piatt said that kind of payments data transparency will only get more important for debit providers looking to gain market share in online purchases. He noted that there are also security issues around debit, along with the perception that credit is the safer way to shop online.

“We saw in our survey that the cardholders are using their debit cards in-store for purchases, but a full 22 percent of them are actually moving to their credit cards online because of fraud concerns,” he pointed out. “And that makes sense, because we’ve heard for years: ‘Only use your credit card when you’re online.’”

If merchants want debit customers to buy their wares online, “you have to take a close look at your policies,” said Piatt. “How do you make it easy for them to understand what your dispute process is and how well it works for customers? Are you able to offer zero fraud liability on debit?”

Piatt said that while the trend has been toward debit this year, what happens in 2021 will depend on whether debit can do more in terms of transparency and rewards to better compete with credit cards. Otherwise, there’s reason to believe that consumers will head back to credit over the longer term.

The New Landscape 

Overall, Piatt said the 2021 landscape will be a lot more about forward motion than a return to the old norms.

With COVID-19 vaccines tantalizingly close on the horizon, we know there will be some return to “normal” before 2021’s end. Segments hit particularly hard – travel springs to mind – will recover, but it will take time.

In the meantime, Piatt said those building rewards attached to cards will have to figure out how to replace the value that travel used to provide. There are ways to do that, but they’re going to vary based on a bank’s customers. He noted that only a good analysis of a financial institution’s in-house customer data will point a firm in the right direction in terms of what to develop.

Piatt added that consumer preferences are now becoming habituated, which everyone in the segment needs to recognize going forward.

For instance, contactless payments – mobile wallet and card-based alike – are becoming a consumer preference beyond their utility as a safety tool. Avoiding COVID-19 might have been a reason for that preference initially, but it’s increasingly apparent that a desire for contactless exists apart from the pandemic.

“The landscape has shifted permanently,” Piatt said. “Nearly three-quarters [of consumers] plan to keep using those mobile contactless payments post-pandemic, because they’ve learned to like them better.”

All in all, he believes digitization isn’t just a fad that COVID-19 brought to the commerce world, but an evolution that’s ongoing – and that’s likely to remain the case even after the pandemic winds down.