• Consumers are shunning ATMs in exchange for the convenience of using debit cards
What’s in your wallet?
If you’re a typical customer at Citizens Bank, Sovereign Bank, or pretty much any area bank these days, chances are you have a Visa or MasterCard-logo debit card. It goes in the slot in your wallet that used to belong to your ATM card, but this one doesn’t have that much contact with ATMs.
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It pays for gas for your car, for groceries at the supermarket, even for your lunch at Kentucky Fried Chicken. You may use it so much, in fact, that the cash in your wallet may be down to $10 and it’s not a problem. And when you do stop by the ATM to replenish it, you might only get $60 where before you got $80.
Welcome to a debit nation. In just a few years, the versatile cards that replaced most bank customers’ ATM cards have become so popular that they’ve transformed the way Americans use their money – and made banks a nice chunk of cash.
Banks have noticed this among their own customers, though they don’t tend to share details with one another. Then this summer, Bill McCracken, CEO of the Synergistics Research Corp. in Atlanta, released survey findings that document the trend:
• Last year, the average U.S. household conducted 57 ATM transactions, down from 64 in 2002.
• ATMs have stopped gaining new converts; about 58 percent of bank customers use them, but the figure has remained stable for years; another 25 percent have never used ATMs, and about 17 percent don’t use them anymore. Most of those non-users prefer bank tellers. And about two in five people get cash back when they pay by debit.
Meanwhile, debit-card use has exploded. According to ATM & Debit News, monthly point-of-sale debit transactions, with PIN use, rose from 32.2 million in 1993, to 120.2 million in 1997, to 304 million in 2001, to 495.3 million last year.
As of mid-2003, ATM & Debit News reports, the number of MasterCard debit cards had grown to 50.3 million, up from 22.4 million in 1997. Visa had 136.6 million debit cards in circulation, up from 58.1 million in 1997. In the first half of 2003, debit card users conducted nearly 4.6 billion offline (non-PIN) transactions, worth more than $180 billion, with those cards, more than twice the value for all of 1997.
How do those two trends fit together? It’s complicated.
Part of ATMs’ decline, according to McCracken’s research and other industry surveys, is that people want personal service. As convenient as ATMs are, many customers, especially those with lower-end accounts, have been forced to use them because banks charged them fees for using a teller. For example, Fleet charges customers of its basic checking $2 to complete a transaction with a teller. Now, with rising competition in the checking market, the share of customers being forced to use ATMs is much smaller.
Off-network ATM fees are also a big turnoff, McCracken and others have found – and they’ve held steady, even risen slightly, in the last several years. But with debit cards, banks don’t impose the off-network fee when customers also get cash back. That’s not keeping debit users away from ATMs, however.
“Point of sale is rapidly increasing, but cash withdrawals are pretty consistent,” said Jim DeRentis, executive vice president of retail banking and marketing for Bank Rhode Island. “Where you see the difference is check usage, for medium-size purchases like at supermarkets, larger chains and self-serve places.”
BankRI has offered MasterMoney cards to its customers since it opened in 1996, DeRentis said, and it’s seen “double-digit” annual growth in both the issuance of debit cards and in their usage. From the first quarter of 2003 to the first quarter of 2004, DeRentis said, debit card transaction volume increased 16 percent, and the dollar value, 13 percent. ATM usage remained “flat,” he said, and the dollar value declined slightly.
Washington Trust, meanwhile, is seeing growth in both ATM use and debit transactions, according to Elizabeth B. Eckel, senior vice president for marketing.
But the reasons for each segment’s growth are different: With a light branch presence in the northern half of Rhode Island, Washington Trust is making itself accessible to customers through more ATMs. It just put machines in all 48 Brooks Pharmacy stores in the state, as well as some in Massachusetts, and it has an ATM in the Providence public-safety complex. It’s also in the Mystic Aquarium.
Debit card use, however, is growing even more rapidly. From the first half of 2000 to the first half of 2004, MasterMoney sales volume grew nearly 125 percent, Eckel said. And while only 40 percent of ATM-only cards held by Washington Trust customers were active as of June, she said, 62.5 percent of debit cards were being used.
Neither Citizens Bank nor Sovereign Bank would provide equally detailed information, but both reported seeing similar trends among their customers.
Lisa Stanton, senior vice president and director of ATM and card services at Citizens, said debit-card transaction volume has “grown significantly from year to year” in the last five years, while ATM use has seen a “slight decline.” At Sovereign, spokeswoman Ellen Molle said ATM use had declined “minimally” from 2002 to 2003, then leveled off, while there has been a “pretty healthy increase” in debit-card use.
Debit cards are also used to access online banking, yet another growing market segment. And customers are also assured, all the banks stressed, that they’re protected from fraud just as they would be with a Visa or MasterCard credit card.
Then there’s the profit factor – which banks were reluctant to discuss. Every time a customer uses a debit card, the merchant pays a small transaction fee – more when it’s used as a Visa or MasterCard, less when it’s used with a PIN. The processing bank makes a cut, and so do Visa and MasterCard. But the issuing banks also get a cut of those billions, with minimal costs associated.
Of course it’s also nice to keep customers happy, and quick, safe, easy access to money, the banks all said, is what customers want.
“To paraphrase Pepsi, it’s the choice of the new generation,” said Stanton. “It’s accepted everywhere, it’s simpler, it’s safer, so it certainly makes us part of your day every day for a lot of customers.”
