Debit Volumes Surge as Consumers Embrace Flexible Credentials

On Wednesday (July 30), PYMNTS CEO Karen Webster wrote: “The most important credential that has emerged for enabling payment and purchase flexibility is not a new type of credit card. It’s the debit card.”

Debit has been a key choice for using the funds on hand to get what one needs, and wants, especially in brick-and-mortar locations, without bumping up against credit limits or taking on additional debt.

At the end of last year, PYMNTS Intelligence found that when it comes to face-to-face transactions, consumers favor debit cards, with 42% using a debit card for their last retail purchase. Meanwhile, just 28% used a credit card. In other words, consumers are 50% more likely to use debit cards than credit cards in physical retail locations.

There’s also the appeal of paying over time, Webster wrote last week, as “a purchase divided into four or six or 12 or 24 equal payments becomes a known quantity. That pay-later-and-at-any-pace structure is appealing to anyone managing a tight or unpredictable budget. That would be many of the roughly 68% of U.S. consumers who report living paycheck to paycheck … debit BNPL is inclusive, serving those who can’t or won’t get a credit card.”

Those musings are being borne out by data and commentary disclosed in recent days as part of the earnings season deluge.

Debit Volumes Surge

In Visa’s most recent earnings results, payments volume growth in nominal terms was 9% in the fiscal third quarter. Credit volume was up 7%, outpaced by debit, which grew by 10%. In the U.S., debit growth was 7%, compared to credit at 6%.

For Mastercard, supplemental materials revealed that worldwide debit volumes were up 11.2%, and credit volumes gathered 7.4% as measured by gross dollar volumes. In the United States, debit volumes slightly outpaced credit at a respective 6.4% and 6%.

During the conference call with analysts, Visa CEO Ryan McInerney stated that into the end of July, “even with the continued uncertainty, consumer spending remains resilient. Within the U.S., while spending growth differed among consumer spend bands, all spend bands in Q3 remained resilient and consistent with past quarters.”

In terms of the payments modalities themselves, flexible credentials may give tailwind to debit spending (in Visa’s case, the Visa Flexible Credential’s default funding source upon rollout has been debit, per these merchant FAQ details).

As McInerney said on the call, total credentials were up 7% year over year, marking the ninth consecutive quarter of at least 7% growth.

“As we continue to transform Visa cards for a more digital future, our flex credential is an important solution. We have seen interest across various use cases such as buy now pay later, small business, multi currency and more,” he said.

Klarna, as PYMNTS has reported, will be launching a Klarna card powered by the payment network’s flex credential in both the U.S. And Europe. Visa has expanded the flexible credential geographically with inaugural clients in Vietnam, the Philippines and Bangladesh.

During Mastercard’s call, CEO Michael Miebach commented: “We’ve deployed the Mastercard One credential as a network-level capability worldwide, enables issuers to offer a single digitally connected credential to give consumers flexibility as to how they want to pay — debit, credit, prepaid, installments or stablecoin — through their banking apps.”

There’ll be more detail on what we might call the “mashup” between debit, buy now, pay later (BNPL) and the embrace of flexible payment options when BNPL firms like Affirm report results in the coming weeks — as the debit card continues to evolve as a key payment of choice.

Debit volumes, as reported by Mastercard and Visa, are outpacing credit metrics, offering up evidence that consumers want to spend the funds “on hand.”

Management at the payment networks noted that flexible credentials are gaining traction as users value the ability to toggle between payment methods housed at a single bank, including BNPL and debit functions.

PYMNTS CEO Karen Webster recently wrote that paying over time, with a debit card, is emerging as a key payment choice in the paycheck to paycheck economy.