NEW YORK – Research has shown that the rise in the popularity of debit cards has cut into some of the transactions that would normally have gone onto credit card balances, although cash and checks continue to be the largest losers in the rising debit card phenomenon, a card market research firm has said. The survey, conducted by Edgar Dunn & Company, a financial services strategic advising firm headquartered in New York, revealed that surveyed debit card holders use their debit cards instead of cash and checks 80% of the time but that 20% of the time they chose to pay with debit instead of credit cards, according to Alan Schultheis, a director with the firm. But since card balances were not dropping by any meaningful percentage, the data suggested that the competition between the two payment methods is not a zero sum game. "The movement from cash and checks continues to fuel the movement to both sorts of cards," Schultheis explained. Schultheis credited increased attention to what he called financial discipline for the 20% shift, as cardholders have sought to take control of their spending by paying for more transactions directly from available funds rather than carrying a balance. The New York-based card research firm has a database of 6,500 respondents who are card owners and credit card decision makers and whose annual household income is greater than $20,000. Database participants were surveyed about their card choices, preferences and behavior in late 2000 and were scheduled to be surveyed again in 2001. But the events of September 11 led the firm to hold off on its smaller survey meant to benchmark the data from the first survey until 2003. Schultheis said that his firm did not plan on surveying the full 6,500 participants annually but to survey parts of the database periodically to highlight certain aspects of it. Other information from the survey confirmed what other surveys have reported. Over a third (38%) of consumers in 2003 said they preferred using their debit card for purchases, and there were shifts among consumers of when they prefer to use credit cards. The percentage of consumers that preferred to use "standard" credit cards dropped from 57% in 1999 to 36% in 2003. At the same time, 33% of cardholders preferred co-branded cards or affinity cards in 2003 versus 25% in 1999. The preference for so called loyalty cards has also grown, moving to 25% in 2003 from 10% in 1999. Rewards programs were found to not only influence behavior, for example by keeping cardholders using their credit cards more of the time even though they might prefer debit, but also retention. Six out of 10 card holders surveyed have chosen a card with a rewards program as their preferred card, and 90% of those cardholders said they would not reduce usage or cancel their preferred reward card. Sue Chrzan, communications specialist with Card Services For Credit Unions said that CSCU won't comment on the study, but noted that Visa has told its card issuers that their broader role is to get their members and customers to choose cards over cash and checks as a payment method. "Whether it's a credit card or debit card, they still come out ahead if the cardholders use the card," Chrzan observed. "Yes, debit transactions will not carry the same finance income that credit card balances do, but both generate interchange and both merchants and credit unions benefit when consumers use cards instead of cash and checks. -

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