Converting cash customers to debit users

Converting cash customers to debit users

Do your customers pay with cash or with debit cards? What motivates them to make the switch from one method of payment to another? MasterCard Advisors, the professional services arm of MasterCard Worldwide, uncovered some answers to those questions in a study of debit card usage in Western Europe.

It also revealed why it might be worthwhile to merchants, who must pay swipe fees for each debit transaction, to encourage customers to use debit cards.

The journey from cash to debit
The study included an analysis of transactions over a 24-month period, plus consumer research that provides insights into why people use (or don't use) debit cards. It identified five steps that occur as people make the transition from cash to debit:

• Step 0 (cash only): Consumers at this level use their debit cards to make cash withdrawals from ATMs. They do not use debit cards for purchases.

• Step 1 (necessity or confined use): The move to this level of debit card usage most often occurs when people can't use cash and don't have any other options for payment -- when they want to make a purchase online, for example. They may also use a debit card in an emergency, or when they make a one-time, planned major purchase.

• Step 2 (incidental use): Although consumers at this stage still use cash primarily, they also begin to use their debit cards for purchases in what the report calls "first-use" categories, such as groceries and fuel.

• Step 3 (building to regular use): Consumers regularly use debit cards for basic purchases in approximately five to 10 spending categories, such as groceries, fuel and clothing. However, they continue to pay with cash for things like fast food or bus fare. They also rely on cash as a way to limit their expenditures in categories like entertainment spending.
  
  Step three is considered a turning point in people's conversion to regular debit card usage. It marks a change in the way they look at debit cards - they are beginning to see them as a replacement for cash.

• Step 4 (habit is formed): Consumers use debit cards confidently and on a wider scale, making purchases in 11 to 20 categories. They move from relying on debit cards only for the basics to using them for non-necessities like entertainment.
  
  But customers in this category still don't feel comfortable about using debit cards in unfamiliar surroundings (such as when they travel abroad) or in locations where it's not readily apparent that a merchant accepts debit cards. If there's no easily visible way to make a debit payment, they may use cash.

• Step 5 (debit devoted): These are people who are confirmed debit card users. They make purchases using their debit cards in 20 or more spending categories, including socializing, health and personal care and other discretionary areas. They often don't carry much cash and are frustrated by merchants who don't accept debit cards.

Merchants' role in debit card adoption
Some merchants might be hesitant to encourage customers to switch from cash to debit. After all, they have to pay transaction fees each time a consumer uses a debit card. And these fees can eat up a significant amount of small-dollar purchases. So why would merchants want to push debit rather than cash?

The answer lies in one of the study's most interesting findings -- the use of debit cards does not reduce the number of cash transactions made by consumers; that number nearly doubles, even though the percentage of cash transactions in the payment mix declines by more than two-thirds. In other words, debit users tend to spend more and make a greater number of transactions - both via cash and debit.

So, how can merchants inspire debit use? They need to make customers comfortable with using their cards. The study warns about "the negative attitudes toward debit on the part of some merchants, who keep their terminals hidden from sight or apply surcharges on low-level card payments."

Even at Step 4, consumers want visual cues that tell them that debit cards are welcome. When they're in an unfamiliar place, a sign on the payment terminal that clearly indicates debit is accepted could motivate customers to reach for their cards.

Consumers' attitudes toward debit
Even if merchants make it easy for their customers to use debit, the decision about whether to switch to plastic is tied to consumers' attitudes.

Researchers discovered that the way in which consumers used debit cards made a difference in how they looked at them. For example, people who made one or two large purchases in just a few categories were less likely to think of the debit card as a replacement for cash than those who made numerous small purchases over several spending categories.

Consumers' perception of debit cards as a way to control or track spending also changed according to their position on the five-step scale. At Step 1, they see cash as the best way of controlling their spending, because of its immediacy. They also see cash transactions as faster than debit and like the fact that cash is accepted everywhere. But as consumers move to Step 3 and beyond, they begin to see the benefits of using debit cards as a way to track spending.

There are limits, even for those who use debit daily. Those at Steps 4 and 5, who are confident about using their debit cards, still hesitate when it comes to using them while traveling overseas. They are afraid that it would be difficult to settle any problems they had using them once they returned home.  

Moreover, consumers at every level, even those who use debit cards consistently, are concerned about issues of fraud and loss. Few, according to the study, understand the security advantages and fraud protection that using debit cards can offer.

See related: Five months in, how is the Durbin Amendment affecting banks, merchants and consumers?, Study: Debit card boom shows no signs of waning

Published: April 2,2023