Debit plastic feels ‘Real’ and it works online.

Debit cards tied to reward programs are a growth area for banks, especially since fewer than one in ten debit card users today participate in rewards programs.

More than 60% of consumers prefer using debit cards to credit cards as a payment vehicle, because debit feels more like “real money,” according to a recent TNS Financial Services Consumer Credit Card Program Study.

Between 2002 and 2005, the number of households using an ATM or debit card has grown from 47% to 60%. And 57% of households that have both a rewards debit card and a rewards credit card are likely to use the debit card to pay for purchases, according to TNS.

Rewards programs are a major incentive for consumers to switch to debit cards. For example, Bank of America’s “Keep the Change” program ties debit card use to a savings program, in which purchase amounts are rounded up to the nearest dollar and the difference is transferred to an interest-bearing savings account. In a survey of 1,000 US adults in April and May, Synergistic Research found that 45% were aware of these debit-reward savings programs, although fewer than 3% of debit card users participated in such a program. More than 60% told researchers that they would be likely to use their debit card more often if they had a savings incentive.

More mature consumers seem to appreciate the rewards most, at least for the moment. The TNS study found that 73% of debit card users who participate in rewards programs are 35 and older. Household income was not as great an influence on debit card use, with half of users having less than $50,000 in annual income and half having more than $50,000.

Debit card transactions now account for the same value of in-store purchases as cash (each at about 33% of total transactions), according to the 2005/2006 Consumer Payment Preferences study from the American Bankers Association and Dove Consulting. While cash has remained steady at 33% since 2001, use of debit cards rose from 21% of in-store purchases in 2001. Credit card use declined in that period, from 21% of in-store purchases in 2001 to 19% last year.

Debit is also gaining in significance as a form of online payment. By 2010, debit cards will account for 46% of all online purchases, up from 41% this year, according to data from JupiterResearch reported in American Banker. The same data show credit card use declining to 35% of all online purchases in 2010, compared to 41% this year.

By Lisa E. Phillips- Senior Analyst

Courtesy of http://www.emarketer.com