Needham, MA - 8 October 2007

Tighter financial markets, new waves of bankruptcies and foreclosures, and economic uncertainty have caused a constriction in the availability of credit. Yet despite current challenges in the credit markets, new research from TowerGroup finds that the debit card’s increasingly dominant position as a payment vehicle will continue through 2009 and beyond. Prepaid cards will also continue their rapid growth as a result of foreclosures affecting credit scores and consumers continuing to require the benefits of payment card access.

Transactions for debit cards in the United States surged three times faster than those for credit cards from 2005 to 2007, as consumers separated purchases into “lending” versus “spending” products. Debit cards have absorbed a growing share of consumable purchases – such as gasoline, groceries, and other day-to-day consumer expenses – leaving the credit card for durable goods purchases. As consumers and businesses work their way out of a sluggish economy, TowerGroup projects the weakened economy will continue to erode the rate of credit card transaction growth.

Although personal savings rates in the U.S. fell to record lows in 2004, debit card volume continued to grow both steady and aggressively. Even as consumers tightened their budgets or were unable to save discretionary cash, their reliance on payment cards for business transactions is visible.

TowerGroup believes the debit market is primed for growth from channels and relationships beyond the confines of traditional retail banking products. There are several emerging and high-growth debit markets that should carry substantial transaction volume and value as they come to fruition. These include person-to-person payments via the emergence of mobile and “contactless” transactions, micropayments covering low-value transactions, and pre-loaded debit products aimed at the teenage and college markets.

The research report, titled “Crediting Debit: How Debit Cards Will Grow in a Changing Environment,” is authored by Brian Riley, senior analyst in the TowerGroup Bank Cards practice. The report explores why debit cards will continue strong transaction growth regardless of a downturn in the economic climate and its uncertain impact on aggressive credit card lending.

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