JULY 2004

Cardholders Still Use Cash and Checks

Despite the saturation of the U.S. credit card market and the rapid rise in the number of debit cards in circulation, plastic is still not the preferred means of payment by U.S. consumers. A recent study of 4,000 consumers by Visa, U.S.A found that consumers are not dedicated to any particular payment method, and tend to switch between plastic, checks and cash. Tracy Hampton, a senior vice president at Visa's research services group, told the American Banker that "commitment to credit cards compared to the other [payment] categories is at its lowest level ever... The message is loud and clear. There is pretty formidable competition in the form of cash."

A consumer survey conducted by the American Bankers Association found that in 2003, consumers made 52% of their point of sale transactions with plastic (credit and debit cards), and 47% by cash and checks. Checks continue to dominate in non-point-of-sale areas. The Visa research delved deeper into the consumer choice of payment mechanism by constructing an index of "commitment" for each type of payment method. Factors that determined the index value were attributes such as speed and convenience, anonymity of the transaction, and likelihood of spending more vs. less with one method vs. another. Little loyalty to any particular credit card was found in the study. Hampton told the American Banker that "the more cards in the wallet, the lower the average commitment score is going to be," and the greater the likelihood that a given card will be inactive.

Most notably, cards that award airline miles enjoyed the greatest loyalty. According to Forrester Data, a division of Forrester Research Inc. (Cambridge, MA), airline "affinity" bank credit cards draw three times as much charge volume as all other types of credit cards, including other types of rewards cards. The April 2004 results from Forrester's Ultimate Consumer Panel found that airline cards had, on average, $1,805 of monthly purchases, compared to $579 for all other cards.