Debit or credit? I still prefer credit but in the wild debit usage has exceeded credit usage in both the number of transactions and the total purchase dollars.
According to this earnings release by Visa, in 2012, US consumers used debit cards 2.5 times as often as they used credit cards. The total dollars charged to debit cards were nearly 50% more than the total dollars charged to credit cards. In other words, between debit and credit, US consumers used debit 70% of the time for 60% of their total purchases on cards.
When you use credit, you typically get rewards: points, miles, cash back, etc. 1% is the standard. Good credit cards pay more. When you use debit, you typically don’t get a reward. Consumers voluntarily give up those rewards because they just want to spend the money they have, right now. Effectively they are paying a higher price to gain control.
Wouldn’t it be nice to have it both ways? Spend the money you have have now AND not pay the higher price? Last time I wrote about Target’s REDCard debit card. It gives 5% discount for debiting your bank account versus your using a credit card to get 1-2% rewards. Now all who use a credit card at Target are effectively paying a higher price.
More of this type of debit discount are coming. When I was checking out at grocery store Safeway, I noticed a button labeled "Fast Forward" on their payment terminal (bottom left of the picture below):
I didn’t know what it was so I looked it up. It’s a pilot program they are running in Sacramento, California area. You give them your bank account number. They give you a Fast Forward card. That card can replace your club savings card because the club savings card is linked to Fast Forward. If you don’t want a card altogether you can just use a phone number and a PIN at checkout.
When you use Fast Forward, you get 2x gas rewards points (versus 1x otherwise). $100 purchase gets 1 gas reward good for 10 cents off per gallon. For a 15-gallon fill-up that’s $1.50 savings, or 1.5% discount off your $100 purchase.
If you already use a debit card for buying groceries at Safeway, switching to Fast Forward would be a net gain of a 1.5% discount. If you still use a credit card, unless the card pays extra for grocery store purchases or it’s one of the rare 2% cash back cards, you no longer enjoy a price advantage. In fact if the credit card is a garden variety 1% rebate card you’d be paying more with a credit card than you would with Fast Forward.
1.5% discount isn’t enough to persuade me to switch yet because I have rebate credit cards that pay more in rewards, but it should be attractive enough to others. I hope this becomes a trend. People should be rewarded for using their own money as opposed to being penalized right now.
Have you seen programs like this at other stores in your area? Would you switch to bank account debit for a discount?
[Photo credit: Flickr user DennisTsang]