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5 - 7 Minutes

Debit spending is on the rise, but is it here to stay?

Consumers in North America are making an unprecedented shift away from cash and towards debit spending. Here, Visa’s Dan Sanford, Senior Vice President, Corporate Strategy and Development, explains the factors at play – and whether the trend can continue post-COVID-19.

A year into the pandemic, debit spending is emerging as a clear winner in the U.S. payments landscape. In the first quarter of Visa’s fiscal year, ending December 31, U.S. debit payments volume increased 21 percent year-over-year, as Visa reported in its latest quarterly update. "In the U.S., we are actually back to our pre-pandemic growth trajectory, with debit significantly outpacing pre-pandemic volumes and offsetting credit underperformance," Vasant Prabhu, Vice Chairman and CFO, Visa, told investors. So, how exactly has this move to debit taken shape – and how will it continue to unfold?

Migration to cashless

"Debit has been growing rapidly through this pandemic," confirms Dan Sanford. He sees multiple factors at play here; among them, a perception of cash as "unhygienic," with some merchants not accepting it temporarily, and the increasing acceleration of tap to pay. "We have talked for a number of years at Visa about how tap to pay is really impacting cash usage, as we have been on this migration to contactless card payments," he says. "That was a phenomenon that we were already seeing around the world before the pandemic. Then, with COVID-19, tap to pay became front and center in consumers’ minds – they didn’t want to have to touch anything.

With more than 300 million contactless cards1 now in the U.S., debit rather than credit is reaping the benefit because it is the closest proxy to cash – with both, you are spending money you already have, he explains. In tandem, the increase of online shopping in response to concerns and restrictions around COVID-19 has also fueled debit usage – "and the reason is as simple as, you can't pay with cash online," says Sanford.

Flexing their spending power

Debit has also benefited as consumer habits have changed through the pandemic. Spending has shifted more to "everyday segments" such as grocery, pharmacy, and fast food, where payments are typically made on debit rather than credit. In contrast, spending in sectors such as travel and entertainment, where credit would be used more frequently, remains depressed, while cash spending in restaurants and bars, typically "cash only" sectors, has almost disappeared due to wide-scale closures.

The resilience of discretionary consumer spending has also helped debit. "People have been able to defer payments for a lot of non-discretionary items, such as student loans and mortgage payments," Sanford explains. With those payments of some fixed expenses on pause, some people have been using debit to pay off other bills, or to spend on retail goods like consumer electronics. "Consumer discretionary spend is actually at elevated levels because of the pandemic, and that's part of what's driving debit, he says. "The other thing that we are seeing is tremendous economic stimulus from the government with unemployment payments and stimulus checks, some of which are being distributed through prepaid debit cards."

Acceleration not revolution

So, in many ways debit is being driven by a rapid acceleration of existing trends, rather than a revolution in behavior, according to Sanford. "The trend of contactless payments didn't emerge because of COVID-19; the move to digital was already under way," he says. "Pre-COVID-19, I may have paid my mobile phone bill online and bought something at Amazon once a month. Post-COVID-19, I now order food to my house every week, and I have Instacart drop off groceries instead of going to the grocery store. What you are seeing is that consumers are now shopping with debit in more categories – they are more active online, and more active with contactless than they were before – and that is the bigger underlying trend around what is driving a lot of the debit usage right now."

Which is why, as people are able to resume some of their former habits – shopping in person and traveling again, for example – he expects to see some move back from debit to credit: "Levels of debit use won't be at the levels you're seeing right now, but we believe they will be sustained beyond where they were prior to the pandemic." In tandem, he predicts cash usage won’t recover to its former position. Already, from 2018 to 2020, some $600 million in physical cash came out of the U.S. economy, leaving $1 trillion in use in 2020.2

"We have a huge opportunity remaining in cash and believe it will continue to be a prime driver of debit growth – both as card users gradually shift away from cash, and as we bring more people into the financial system."

Visa’s Recommendations

  • Focus on your debit offering and debit security – Those who want to be at the forefront of this shift should focus on their debit offering. Specifically, many consumers still believe debit is a less secure way to make payments online,3 although it brings the same level of security as credit. Financial institutions should be emphasizing security to assure their cardholders feel comfortable making online purchases.
  • Make debit the selling point – Consumers love the value proposition of debit, but typically only have one debit product. Many financial institutions mention debit as a "comes with" feature to their checking account rather than a strong selling point. However, obtaining a debit card is the leading reason millennials open checking accounts.4 Clients should be emphasizing the benefits of spending on debit when a customer opens a new account. For financial institutions, it is a gateway product which can lead to an enduring customer relationship.
  • Enable tap to pay – The ease and speed that contactless provides at the physical point of sale drives additional transactions. Once someone has shifted their payment behavior from cash to debit, they are unlikely to go back5 – it is increasingly becoming a table-stakes feature.

Click here for Visa’s latest thinking on tap to pay

Forward Looking Statements

This content contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are identified by words such as "believes," "estimates," "expects," "intends," "may," "projects," "could," "should," "will," "continue" and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict.

Visa Confidential

Last updated: April 2021

All brand names, logos and/or trademarks are the property of their respective owners, are used for identification purposes only, and do not necessarily imply product endorsement or affiliation with Visa.

1 Visa Q1 Earnings: Visa Inc. Reports Fiscal First Quarter 2021 Results
2 Euromonitor Consumer Finance from trade sources/national statistics, January 2021
3 Visa Debit Online Incentive Research, September 2020 Base: Total Respondents (n=1,301), Q7: Which is the top factor you consider when deciding which payment method to use offline?, Q10: And which is the top factor you consider when deciding which payment method to use online?
4 Visa Payments Panel Q1 2019 conducted a survey of respondents, “What’s the primary reason that you opened a checking account?” 21% of Millennials (age 18-34) indicated “To get a debit card.”
5 PaymentsJournal research, March 2020, suggested 70% of surveyed consumers who are new to contactless payments report they will continue to use this payment method after the pandemic. https://www.paymentsjournal.com/contactless-and-covid-19/

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