Banking

Debit Card Usage Declines as Consumers Turn to Credit Cards and Digital Payments

A look at consumer payment data reveals that the number of debit card users is declining across the country as a growing number of households turn to credit cards and new digital banking options.

Debit cards have long been one of the simplest and most common financial products in the U.S. Because banks issue a debit or ATM card with almost every new checking account, the number of cardholders has continued to stay high. However, a closer examination of the data suggests that debit card use is actually in steep decline across the country.

Debit Card Use has Sharply Declined Since 2013

chart showing the declining trend in debit card use among U.S. households from 2013-2018
The declining trend in debit card use, as reported by U.S. households

In the five years since 2013, the percentage of households that use debit cards has dropped from 74% to 58%. According to data from S&P Market Intelligence, this declining trend in debit card usage holds true in every state.

U.S. map showing which states saw the greatest decline in debit card use, 2013-2018
Map showing which states saw the greatest decrease in debit card use from 2013-2018

Why is Traditional Debit Card Use in Decline?

The decrease of debit card use can be explained by the rising popularity of other banking and payment methods. Over the past few years, S&P's data on financial habits indicate a meteoric rise in the number of households that reported using credit card rewards programs, online banking and mobile banking.

Bar graph showing the user growth rate for credit cards, online banking, and mobile banking from 2013-2018
The average increases for credit cards, online banking, and mobile banking from 2013-2018

Credit vs. Debit

Credit cards provide consumers with multiple advantages over debit cards, and the disparity in benefits has continued to increase year after year. Not only do credit cards partially subsidize spending via cash back and rewards programs, they also offer a much safer way to spend money. Debit card spending is reflected instantly in a user's bank balance, while credit card expenses can be canceled in case of fraud or theft.

Line graph showing the increase in credit card rewards users compared to debit card users
Since 2017, more households use credit cards than debit cards

The growing dominance of credit cards does present at least one new issue: more credit card debt. Although it's possible to use credit cards debt-free by paying off the balance every month, rewards programs are designed to encourage consumer spending. For now, credit card debt only makes up a fraction of total household debt. However, the average household credit card balance continues to rise.

Online Banking and Digital Payments

Even in cases where households would rather use debit over credit, new banking services like online and mobile banking appear to be crowding out physical cards. Chores like transferring money and depositing checks once required taking a debit card to the bank, but banking apps and websites now offer far quicker ways to do the same.

Line graph showing the increase in online and mobile banking compared to debit card usage
Since 2013, online and mobile banking have grown steadily year-over-year

In addition, payment apps like Apple Pay and Venmo have made it possible to complete everyday transactions with a smartphone. This has likely reduced the number of times people pull out their debit cards to pay at the register or withdraw cash from ATMs. As mobile payments grow, the use of physical debit cards is likely to continue to decrease.

Debit Cards and the Future of Banking

Between greater credit card use and more convenient forms of banking, traditional debit cards seem likely to play a smaller role in the spending patterns of many consumers. However, there are several trends that suggest that debit cards still have a major role to play in providing payment features to people who cannot or choose not to use credit cards and digital banking.

One trend that supports this idea is the persistent popularity of cash in smaller everyday transactions. Although cash accounts for a shrinking share of overall spending by volume, bills and coins remain the most frequently used payment method. Credit card users may be turning away from debit cards, but the enduring popularity of cash means that debit cards will still be important for those who rely on ATM withdrawals.

In addition, the rise of prepaid debit cards suggests that the audience for debit cards isn't declining, but rather shifting. While banks continue to close local branches in favor of online services, nonbank companies like Walmart operate massive prepaid debit card programs, which offer most of the features of a regular bank debit card. Even smaller companies, such as Starbucks have been entering this market with a prepaid debit card that offers rewards—a perk debit cards typically don't have. As technology develops and businesses adapt to changing times, we expect to see more and more products that can be a substitute for traditional debit cards.

Richard Zhang

Junior Research Analyst