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The COVID-19 crisis is pushing more purchasing over to debit cards in what could drive a $100 billion annual shift away from credit cards over time, according to Visa Inc.
While U.S. credit-card volume on Visa V, +0.26% cards remained down from a year earlier in May, debit-card volumes were up 12% last month, the company disclosed in a Monday-afternoon filing.
“There’s a consumer psyche of sort of not spending someone else’s money but spending my own money,” said Oliver Jenkyn, Visa’s executive vice president for North America, at Baird’s Global Consumer, Tech & Services Conference on Wednesday.
Visa estimates, based on past behaviors, that there could be a $100 billion annual shift to debit-card spending from credit-card spending over time, Jenkyn said. Consumers migrated spending to debit from credit in 2008, he noted, and even in late 2018 amid uncertainties around a government shutdown and trade tensions with China.
In the medium and long term, he expects more purchasing to migrate over to debit cards. He also predicts that consumers will shift their credit spending to more “pragmatic” options, like low-fee or no-fee cash-back cards rather than higher-end travel rewards cards that have annual fees.
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Visa also saw a 12-percentage-point increase in the portion of spending done via e-commerce in April, which Jenkyn said was unsurprising given shelter-in-place restrictions and temporary business closures. However, he said the increase was still “notable” because it marked the same level of increase that Visa saw over the past three years in total.
“The situation has forced almost three years’ worth of habituation,” Jenkyn said, helping to build “muscle memory” around new ways of paying that he expects could linger even after businesses are able to reopen their physical stores more broadly.
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He said that the pandemic has also become a big catalyst for contactless payment adoption as there’s a “natural ground swell” of ordinary people helping to raise awareness about tap payments given concerns over germ spread when paying through more traditional means. “Instead of us going out and talking to merchants or issuers, now they’re calling us,” Jenkyn said at the conference.
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The overall changes in payment preferences during the pandemic aren’t having a “material impact” on Visa’s transaction yield, though Jenkyn is optimistic that some of the new behaviors will help the company ultimately win more share of payment volumes from cash transactions. An estimated 55% of transactions under $10 are made in cash, he said, and Visa is hoping people will become more comfortable using their cards for these smaller purchases.
Visa shares were up about 0.3% in Wednesday trading. They’ve added 12% over the past month as the Dow Jones Industrial Average DJIA, +2.04% has risen 11%.
