The Debit Card Revolution

In 1951, the first bank credit card was issued and America quickly fell in love with plastic. Sure, there were some fees and interest charges, but living on “pay later” credit became a financial lifestyle for millions.
In 1969, the first automated teller machine debuted, and America eventually warmed to the concept of ATMs. At the outset of this “quick cash” era, quite a few naysayers voiced suspicions about the new electronic technology, stating they’d never use a machine to get their money. Brick and mortar branches were the only way they’d do their banking.

Needless to say, the skeptical mindset of the ‘70s has been swept away by overwhelming acceptance of today’s ATM lifestyle. Recent studies show consumers rate ATMs as one of the most important conveniences in their lives. Why stand in lines and deal with tellers when there are 371,000 ATMs spread across the country and 1.2 million installed worldwide?

“People under the age of 30 have used ATMs all their life,” says Robert Rose, CEO of CO-OP Network, the largest credit union ATM network in the country, with 19,000 ATMs in all 50 states and Canada. “They’ve never had to go into a branch to withdraw money or to even purchase traveler’s checks, because they have access to their cash nearly everywhere in the world.

“It took a little while for baby boomers and older generations to catch on to the convenience of ATMs, but nowadays Americans perform 11 billion ATM transactions annually.”

Originally configured solely as cash dispensers, modern ATMs perform all kinds of financial transactions, including taking deposits and transferring money between checking and savings accounts. Some machines even mete out other conveniences, such as movie and concert tickets. While this technology has reshaped -- and simplified -- daily business transactions, other newfangled e-payment methods are also receiving favorable public reaction.

“The 30-and-under crowd is leading the charge into the next evolution in payments -- the debit card. They hardly ever carry more than $40 because their debit card pays for everything. In fact, more than half of Americans are using debit cards for their purchases, and as this phenomenon expands, the use of credit cards and cash will continue to slowly decline and old-fashioned paper checks will rapidly decline.”

“The credit card is still a well-established form of payment, but the market is becoming saturated and growth has waned for the last 10 years. Gobbling up the financial slack are electronic payment options that simply didn’t exist two decades ago, including online bill payment (approximately 33 percent of U.S. households are paying bills online), stored value cards and, of course, debit cards.”

Debit cards, also referred to as check cards, are used like cash or a personal check. And unlike credit cards, which make funds available through a financial institution, debit cards are a way to “pay now” and to subtract money automatically from the cardholders’ bank or credit union account. Consumers don’t have to carry cash, a checkbook or present identification because the debit transaction subtracts funds immediately from their checking or savings account.

There currently are two distinct forms of debit products: signature, which has increased 35 percent since 1996; and PIN (personal identification number), which has increased 29 percent during the same period. And in recent years, prepaid (stored value) cards have gained in popularity, replacing gift certificates at retailers ranging from Starbucks to Nordstrom.

In 2003, for the first time, consumers made more in-store purchases using card-based payment methods than they did using cash and paper checks.

Acceptance of debit, which has grown 27 percent annually for the past five years, is seemingly evolving daily due, in part, to simplicity for consumers and no finance charges. Consumers are also learning to avoid ATM surcharges by requesting “cash back” at the point-of-sale, or by joining institutions that belong to an ATM network, such as CO-OP Network, which offers surcharge-free ATMs to more than 19 million credit union cardholders.

Current growth patterns will soon propel electronic payments beyond paper check volumes, which are dropping by about 3 percent a year. In fact, by 2010, electronic payments are predicted to account for 75 percent of non-cash transactions, with debit constituting the largest share of the payments pie.

“Electronic payment systems, driven by technology, are becoming part of our lives at an accelerated rate,” says Rose. “More and more consumers are becoming comfortable with e-payment systems, using debit cards, online bill pay, stored value cards, PIN and signature debit at point-of-sale and the rest of the e-payment universe as part of their everyday finances.

“The era of electronic payments is upon us and is here to stay.”