Debit cards have seen a huge increase in popularity over the past year. Debit cards, also commonly referred to as prepaid credit cards, have seen steady growth over the past five years because they are an extremely convenient way to pay when compared to carrying cash or writing checks.
Well of course nothing is more convenient than paying with cash but if you lose it you’re out of luck. That’s not the case with debit cards because of the built-in protections that the banks that issue them provide. And as for writing checks, well it’s just a big pain in the butt all the way around.
For the first time ever last year (2008) in the 4th quarter debit card spending exceeded credit card spending. That trend continued into the 1st quarter of 2009 where debit card purchases totaled $202 billion as compared to $176 billion worth of goods and services bought with credit cards.
The reasons for the incredible growth are rather obvious. The recession has caused many credit card companies to either close accounts on cardholders or to slash their lines of credit. And as for people that are applying for new credit cards, well they can pretty much forget about that unless they have near-perfect credit ratings.
Banks are also making it more attractive for people to use debit cards. They are now offering rewards for people that use their debit cards a certain amount of time each month. While of course they cannot charge interest because they are not offering credit, they do make a lot of money charging merchants transaction fees.
As a matter of fact, in light of all the revenue that credit card companies have lost due to the growing number of defaults and bankruptcies many are now turning to debit cards in a big way to supplement their earnings.
When you add in the fact that the new credit card laws will also reign in the high interest rates and fees that credit card issuers have depended upon for so many years you can see why more and more of them are finding debit cards so attractive.