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Credit and Debit Cards - US - July 2012

Debit cards remain the most popular plastic payment type among American consumers, with a 52.5%-to-47.5% edge over credit cards in purchase volume in 2011, up from 2010. Bank efforts to encourage consumers to use credit cards, which are more profitable, and to discourage the use of debit have had little effect on consumer behavior, at least until in late 2011. While credit card profitability has jumped sharply due to a drop in bad loans, banks remain challenged by weak revenue growth, largely due to consumers’ reluctance or inability to borrow on their cards.

This study is a comprehensive look at the U.S. debit and credit card markets, with a particular spotlight on the competitive landscape, consumer behaviors and attitudes, the regulatory and legislative environment, profitability drivers and marketing strategies.

What you need to know:

  • How have debit cards managed to increase their market share in the past year despite banks’ efforts to encourage more credit card usage?
  • What are the primary factors driving profitability in the industry, and what does the future hold?
  • What are the current trends in credit quality?
  • Who are the top issuers in the business, and how has that changed recently?
  • How satisfied are consumers with their credit and debit cards and the banks that offer them?

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Table of contents

  1. Scope and Themes

      • What you need to know
        • Data sources
          • Consumer study data
            • Abbreviations
              • Terms
                • Companies mentioned in this report:
                  • Generations
                  • Executive Summary

                      • The market
                        • Use of plastic for purchases grows strongly, but borrowing remains weak
                          • Figure 1: Total Debit and credit volume, 2010 and 2011, by network
                        • Debit’s share of market grows despite banks’ efforts to promote credit
                          • Figure 2: Debit and credit share of total card volume, 2010 and 2011
                        • Credit card industry profits soar, but revenue continues to fall
                          • Figure 3: Change in total credit card revenues, 2010 vs. 2011
                        • Top six banks dominate the industry; Capital One on the rise
                          • Figure 4: Credit card outstandings at top issuers, Q4 2011
                        • The consumer
                          • Consumers feel better about the state of their finances
                            • Figure 5: Percentage of respondents who say they have good-to-excellent credit, by age, March 2012
                          • More consumers are using their debit cards more often
                            • Figure 6: Increasing or decreasing usage of credit/debit/cash, March 2012
                          • Consumers mostly satisfied with their credit and debit cards
                            • Figure 7: Satisfaction with primary credit/debit card, March 2012
                          • Consumers still skeptical about mobile payments
                            • Figure 8: Interest in using mobile phone as payment device, by age, March 2012
                          • Cash is king, but many consumers prefer lower fees over rewards
                            • Figure 9: Type of credit cards owned, March 2012
                          • Blacks and Hispanics are underrepresented as credit card customers
                            • Figure 10: Type of credit cards owned, by race/Hispanic origin, March 2012
                          • New products and innovations
                            • Credit card issuers continue to launch new products
                              • Banks continue to spend freely to attract customers
                                • What we think
                                • Issues in the Market

                                    • Pressures on the credit card industry
                                      • How to grow the market
                                        • Innovations in cards
                                        • Insights and Opportunities

                                            • Key points
                                              • Got rewards? Many consumers would rather have low fees
                                                • More consumers have excellent credit—take advantage of it
                                                • Inspire Insights

                                                    • Trend: Many Me’s
                                                      • What we've seen
                                                        • Industry application
                                                          • Trend: Life Hacking
                                                            • What we've seen
                                                              • Industry application
                                                              • Market Size and Forecast

                                                                • Key points
                                                                  • Transaction volume continues healthy, but borrowing remains weak
                                                                    • Figure 11: Credit card and debit card transaction volume, 2010-2011
                                                                  • Borrowing on credit cards remains dormant
                                                                      • Figure 12: Revolving consumer credit outstanding, 2007-2011
                                                                    • Average credit card balance drops more than $1,000 since the peak
                                                                      • Figure 13: Average credit card borrower debt, 4Q 2007- 3Q 2011
                                                                  • Competitive Context

                                                                    • Key points
                                                                      • Debit share continues to grow against credit cards
                                                                          • Figure 14: Debit card volume versus credit card volume, 2010-11
                                                                        • Top six banks control majority of credit card business
                                                                            • Figure 15: Credit card outstandings at top issuers, 2010-11
                                                                        • Segment Performance

                                                                          • Key points
                                                                            • Credit card profits soar, but revenue remains weak
                                                                              • Figure 16: Net income at large credit card banks, 2010-2011 (in millions)
                                                                            • Credit quality improvement drives profitability
                                                                              • Figure 17: Credit card loans charged off at FDIC banks, 2008-2011 (in millions of dollars)
                                                                              • Figure 18: Net chargeoff percentages at large credit card banks, 2010-11
                                                                              • Figure 19: Credit card delinquency rate, 4Q 2007- 3Q 2011
                                                                            • The challenge going forward: growing revenues
                                                                                • Figure 20: Credit card revenue at large banks, 2010-11
                                                                            • Marketing Channels

                                                                              • Key points
                                                                                • New credit card offers profit opportunity to customers
                                                                                  • New Chase card combines rewards with discounts
                                                                                    • Card issuers enter the social media fray
                                                                                      • Mail response rates surge
                                                                                          • Figure 21: Credit card response rates, April 2011-April 2012
                                                                                          • Figure 22: Credit card direct-mail volume, April 2011-April 2012
                                                                                      • Market Drivers

                                                                                        • Key points
                                                                                          • Bank response to Durbin fails to change consumer behavior—so far
                                                                                            • Many consumers still reluctant, or unable, to borrow on credit cards
                                                                                                • Figure 23: U.S. consumers by FICO score ranges, 2005-11
                                                                                            • Leading Companies

                                                                                              • Key points
                                                                                                • J.P. Morgan Chase
                                                                                                  • Bank of America
                                                                                                    • Citigroup
                                                                                                      • Capital One
                                                                                                        • American Express
                                                                                                          • Discover
                                                                                                            • Wells Fargo
                                                                                                              • Barclaycard
                                                                                                              • Brand Qualities

                                                                                                                • Key points
                                                                                                                  • Credit and debit cards rank high in convenience
                                                                                                                    • Figure 24: Brand attributes for primary credit card, top two boxes, by gender, March 2012
                                                                                                                    • Figure 25: Brand attributes for primary debit card, top two boxes, by gender, March 2012
                                                                                                                  • Credit, debit cards seen as equally expensive
                                                                                                                    • Figure 26: Brand attributes describing primary credit card, overall, March 2012
                                                                                                                    • Figure 27: Brand attributes describing primary debit card, March 2012
                                                                                                                  • Youngest group sees credit cards as expensive
                                                                                                                    • Figure 28: Brand attributes describing primary credit card, top two boxes by age, March 2012
                                                                                                                  • Minorities view both credit and debit cards as expensive
                                                                                                                    • Figure 29: Brand attributes describing primary credit card, top two boxes by race/Hispanic origin, March 2012
                                                                                                                    • Figure 30: Attributes describing primary debit card, by race/Hispanic origin, March 2012
                                                                                                                • Brand Rankings

                                                                                                                  • Key points
                                                                                                                    • Chase is most popular credit card brand, followed by BofA
                                                                                                                        • Figure 31: Issuer of primary credit card, by gender, March 2012
                                                                                                                      • Discover is more popular among older folks
                                                                                                                        • Figure 32: Issuer of primary credit card by age, March 2012
                                                                                                                      • Amex most popular among high earners
                                                                                                                        • Figure 33: Issuer of primary credit card by household income, March 2012
                                                                                                                      • Amex also popular among Asians
                                                                                                                        • Figure 34: Issuer of primary credit card by race/Hispanic origin, March 2012
                                                                                                                    • Innovation and Innovators

                                                                                                                      • Key points
                                                                                                                        • Ace rewards card app provides instant virtual credit
                                                                                                                          • PenFed pays customers big bucks to switch from cash to points card
                                                                                                                            • Discover More offers $150 sign-up bonus
                                                                                                                              • Citi offers free trip on American Airlines as new customer perk
                                                                                                                                • Fifth Third Bank presents credit, debit card in one
                                                                                                                                  • Capital One small-business cards offer double miles or cash back
                                                                                                                                    • BofA rewards loyal customers with 50% more travel rewards
                                                                                                                                      • Cap One mobile phone app lets customers redeem their rewards on the go
                                                                                                                                        • Fidelity targets college students and their families
                                                                                                                                        • Marketing Strategies

                                                                                                                                          • Key points
                                                                                                                                            • Rewards and bonuses are key
                                                                                                                                              • Representative direct- and electronic-mail advertising
                                                                                                                                                • NFL Visa with Extra Points from Barclays
                                                                                                                                                  • Figure 35: Barclays direct-mail ad, March 2012
                                                                                                                                                • Visa Black Card from Barclays
                                                                                                                                                  • Figure 36: Barclays direct-mail ad, January 2012
                                                                                                                                                • Platinum Visa with Rewards from Wells Fargo
                                                                                                                                                  • Figure 37: Wells Fargo direct-mail ad, March 2012
                                                                                                                                                • MasterCard with Cash Rewards from Capital One
                                                                                                                                                  • Figure 38: Capital One direct-mail ad, March 2012
                                                                                                                                                • Business Spark Visa with Miles from Capital One
                                                                                                                                                  • Figure 39: Capital One direct-mail ad, March 2012
                                                                                                                                                • Chrysler MasterCard from First National Bank of Omaha
                                                                                                                                                  • Figure 40: First national Bank/Chrysler MasterCard direct-mail ad, March 2012
                                                                                                                                                • Student Open Road Discover card
                                                                                                                                                  • Figure 41: Discover direct-mail ad, February 2012
                                                                                                                                                • BankAmericard Visa with Cash Rewards from Bank of America
                                                                                                                                                  • Figure 42: BankAmericard Visa direct-mail ad, March 2012
                                                                                                                                                • Ace Hardware Platinum Visa with Rewards from U.S. Bank
                                                                                                                                                  • Figure 43: U.S. Bank direct-mail ad, March 2012
                                                                                                                                                • American Airlines Gold Visa Signature with AAdvantage from Citibank
                                                                                                                                                  • Figure 44: Citibank American Airlines Gold Visa Signature direct-mail ad, March 2012
                                                                                                                                                • Freedom Visa Signature from Chase
                                                                                                                                                  • Figure 45: Chase Freedom Visa Signature direct-mail ad, March 2012
                                                                                                                                                • Premier Gold American Express with Rewards from American Express
                                                                                                                                                  • Figure 46: American Express Premium Gold direct-mail ad, March 2012
                                                                                                                                              • The Consumer—Cash Back, Points, or Nothing?

                                                                                                                                                • Key points
                                                                                                                                                  • Cash-back and points cards are most popular credit cards
                                                                                                                                                      • Figure 47: Type of credit card owned if any, by gender, March 2012
                                                                                                                                                    • Cash-back cards are most popular among the oldest consumers
                                                                                                                                                        • Figure 48: Type of credit card owned if any, by age, March 2012
                                                                                                                                                      • Rewards card popularity rises with income
                                                                                                                                                          • Figure 49: Type of credit card owned if any, by household income, March 2012
                                                                                                                                                        • Blacks, Hispanics underrepresented among credit card users
                                                                                                                                                            • Figure 50: Type of credit card owned if any, by race/Hispanic origin, March 2012
                                                                                                                                                          • Credit card popularity varies depending on where people live
                                                                                                                                                              • Figure 51: Type of credit card owned if any, by region, March 2012
                                                                                                                                                              • Figure 52: Type of credit card owned if any, by urban area, March 2012
                                                                                                                                                            • Debit more common than credit, but not when it comes to rewards
                                                                                                                                                                • Figure 53: Type of debit card owned if any, by gender, March 2012
                                                                                                                                                              • Older people eschew debit cards
                                                                                                                                                                • Figure 54: Type of debit card owned if any, by age, March 2012
                                                                                                                                                              • Debit is more popular among minority groups
                                                                                                                                                                  • Figure 55: Type of debit card owned if any, by race/Hispanic origin, March 2012
                                                                                                                                                                • Cash back is most preferred credit card reward
                                                                                                                                                                    • Figure 56: Credit card rewards preferences, by gender, March 2012
                                                                                                                                                                    • Figure 57: Credit card rewards preferences, by household income, March 2012
                                                                                                                                                                • The Consumer—Attitudes and Behaviors

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Vast majority of respondents say they have excellent credit
                                                                                                                                                                        • Figure 58: Attitudes concerning credit cards, March 2012
                                                                                                                                                                      • Better credit is rising among all age groups
                                                                                                                                                                          • Figure 59: Attitudes concerning credit cards, by age, March 2012
                                                                                                                                                                        • Lowest earners are showing gains in credit score
                                                                                                                                                                            • Figure 60: Attitudes concerning credit cards, by household income, March 2012
                                                                                                                                                                          • Blacks, Hispanics still trail whites in credit quality, but making progress
                                                                                                                                                                              • Figure 61: Attitudes concerning credit cards by race/Hispanic origin, March 2012
                                                                                                                                                                            • Northeasterners catching up to Midwest on credit
                                                                                                                                                                              • Figure 62: Attitudes concerning credit cards, by region, March 2012
                                                                                                                                                                            • Rural respondents show biggest gains in credit quality
                                                                                                                                                                              • Figure 63: Attitudes concerning credit cards by urban area, March 2012
                                                                                                                                                                            • Majority of credit card users pay their balance off each month
                                                                                                                                                                              • Figure 64: Credit card payment behavior, overall, March 2012
                                                                                                                                                                            • Middle-aged consumers are most likely to revolve a balance
                                                                                                                                                                              • Figure 65: Credit card payment behavior, by age, March 2012
                                                                                                                                                                            • Income correlates strongly with revolving a balance
                                                                                                                                                                              • Figure 66: Credit card payment behavior, by household income, March 2012
                                                                                                                                                                            • Blacks are much more likely than whites to carry a balance
                                                                                                                                                                              • Figure 67: Credit card payment behavior, by race/Hispanic origin, March 2012
                                                                                                                                                                            • Most credit card holders use two cards a month
                                                                                                                                                                              • Figure 68: Number of credit cards used in a typical month, by gender, March 2012
                                                                                                                                                                            • Youngest cardholders use the fewest each month
                                                                                                                                                                              • Figure 69: Number of credit cards used in a typical month, by age, March 2012
                                                                                                                                                                            • Highest earners most likely to use multiple cards
                                                                                                                                                                                • Figure 70: Number of credit cards used in a typical month, by household income, March 2012
                                                                                                                                                                            • The Consumer—Debit-Fee Sensitivity Continues, but Usage Increasing

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Debit card users remain strongly against interchange fees
                                                                                                                                                                                    • Figure 71: Attitudes about debit cards and personal financial situation, by gender, March 2012
                                                                                                                                                                                  • Youngest somewhat interested in mobile payments, worried about security
                                                                                                                                                                                      • Figure 72: Attitudes about debit cards and personal financial situation, by age, March 2012
                                                                                                                                                                                    • Highest earners are most opposed to debit fees
                                                                                                                                                                                        • Figure 73: Attitudes about debit cards and personal financial situation, by household income, March 2012
                                                                                                                                                                                      • Blacks, Hispanics more willing to accept debit fees
                                                                                                                                                                                          • Figure 74: Attitudes about debit cards and personal financial situation, by race/Hispanic origin, March 2012
                                                                                                                                                                                        • Disincentives aren’t deterring consumers from using debit
                                                                                                                                                                                            • Figure 75: Frequency of usage of debit, credit and cash in last year, overall, March 2012
                                                                                                                                                                                          • Usage behavior of men and women has changed at about the same rate
                                                                                                                                                                                            • Figure 76: Debit card usage frequency, by gender, March 2012
                                                                                                                                                                                          • Youngest consumers favor debit
                                                                                                                                                                                            • Figure 77: Debit card usage frequency, by age, March 2012
                                                                                                                                                                                          • Lowest earners moving more of their spending to debit
                                                                                                                                                                                            • Figure 78: Debit card usage frequency, by household income, March 2012
                                                                                                                                                                                          • Blacks and Hispanics moving more of their spending to debit
                                                                                                                                                                                            • Figure 79: Debit card usage frequency, by race/Hispanic origin, March 2012
                                                                                                                                                                                          • More credit card users are using credit less often
                                                                                                                                                                                            • Figure 80: Credit card usage frequency, by gender, March 2012
                                                                                                                                                                                          • Youngest consumers are switching more spending to plastic
                                                                                                                                                                                              • Figure 81: Credit card usage frequency, by age, March 2012
                                                                                                                                                                                            • Most consumers are using credit less often, except the highest earners
                                                                                                                                                                                              • Figure 82: Credit card usage frequency, by household income, March 2012
                                                                                                                                                                                            • Blacks, Hispanics are spending less on their credit cards
                                                                                                                                                                                              • Figure 83: Credit card usage frequency, by race/Hispanic origin, March 2012
                                                                                                                                                                                            • Consumers are moving away from cash
                                                                                                                                                                                              • Figure 84: Cash usage frequency, by gender, March 2012
                                                                                                                                                                                            • Youngest group is moving the most away from cash
                                                                                                                                                                                              • Figure 85: Cash usage frequency, by age, March 2012
                                                                                                                                                                                            • Highest earners least inclined to change their cash payment habits
                                                                                                                                                                                              • Figure 86: Cash usage by household income, March 2012
                                                                                                                                                                                            • Blacks using more cash, Hispanics and Asians less
                                                                                                                                                                                              • Figure 87: Cash usage frequency, by race/Hispanic origin, March 2012
                                                                                                                                                                                          • The Consumer—Satisfaction with Credit/Debit Cards

                                                                                                                                                                                            • Key points
                                                                                                                                                                                              • Most consumers are satisfied with their credit, debit cards
                                                                                                                                                                                                • Figure 88: Satisfaction with primary credit card, March 2012
                                                                                                                                                                                                • Figure 89: Satisfaction with primary debit card, March 2012
                                                                                                                                                                                              • Minorities, whites differ on credit, debit card satisfaction
                                                                                                                                                                                                • Figure 90: Satisfaction with primary credit card by race/Hispanic origin, March 2012
                                                                                                                                                                                                • Figure 91: Satisfaction with primary debit card by race/Hispanic origin, March 2012
                                                                                                                                                                                            • Key Driver Analysis

                                                                                                                                                                                                • Key driver methodology
                                                                                                                                                                                                  • Key drivers
                                                                                                                                                                                                      • Figure 92: Key driver analysis of credit card users, March 2012
                                                                                                                                                                                                      • Figure 93: Key driver analysis of debit card users, March 2012
                                                                                                                                                                                                  • Appendix: Trade Associations

                                                                                                                                                                                                    Companies Covered

                                                                                                                                                                                                    • American Express Company (The)
                                                                                                                                                                                                    • AT&T Inc.
                                                                                                                                                                                                    • Bank of America Corporation
                                                                                                                                                                                                    • Barclays Bank Delaware
                                                                                                                                                                                                    • Barnes & Noble, Inc
                                                                                                                                                                                                    • Capital One Financial Corporation
                                                                                                                                                                                                    • Citigroup Inc.
                                                                                                                                                                                                    • Continental Airlines Inc.
                                                                                                                                                                                                    • Costco Wholesale Corporation
                                                                                                                                                                                                    • Delta Air Lines, Inc.
                                                                                                                                                                                                    • Diners Club International Ltd
                                                                                                                                                                                                    • Hilton Hotels Corporation
                                                                                                                                                                                                    • HSBC USA Inc.
                                                                                                                                                                                                    • Hyatt Corporation
                                                                                                                                                                                                    • ING Direct
                                                                                                                                                                                                    • J.D. Power and Associates
                                                                                                                                                                                                    • JetBlue Airways Corporation
                                                                                                                                                                                                    • Marriott International, Inc.
                                                                                                                                                                                                    • MBNA Corporation
                                                                                                                                                                                                    • Merrill Lynch & Co. Inc
                                                                                                                                                                                                    • Royal Caribbean Cruises Ltd.
                                                                                                                                                                                                    • Southwest Airlines Co.
                                                                                                                                                                                                    • Starwood Hotels & Resorts Worldwide, Inc.
                                                                                                                                                                                                    • The Ritz-Carlton Hotel Company, L.L.C.
                                                                                                                                                                                                    • The Student Loan Corporation
                                                                                                                                                                                                    • US Airways Group Inc.
                                                                                                                                                                                                    • Virgin Atlantic Airways Limited
                                                                                                                                                                                                    • Visa U.S.A. Inc.
                                                                                                                                                                                                    • Walmart Stores (USA)
                                                                                                                                                                                                    • Wells Fargo & Company
                                                                                                                                                                                                    • Wilmington Trust Corporation

                                                                                                                                                                                                    Credit and Debit Cards - US - July 2012

                                                                                                                                                                                                    £3,277.28 (Excl.Tax)