Moving Toward a More Cashless Society

The overall trend moving away from cash and checks and moving toward cards (plastic) continues to gain with even greater momentum as recent surveys indicate. Americans are turning to debit cards as their preferred method of payment. 

The survey conducted on behalf of the Pulse EFT Association found that 54.3% of Americans surveyed prefer to use their debit card. 17.7% use their credit card, 15.4% pay with cash and 12.6% still use checks. Compared to previous 24 months

The recent change of 8.7% of American consumers switching from paying via cash to paying via debit card is attributed to the use of paycards issued by employers to their unbankable employees.

The drastic change of 6.1% in the usage of checks was caused by those individuals who could not manage their bank account. Banks require minimum balances and charge excessive fees for non-sufficient funds and overdraft protection. Instead of switching to cash, these individuals have sought out stored value debit cards or solely rely on their bank debit card.

This relatively new era in prepaid debit cards is catching on quickly, causing a major change in the way consumers prefer to pay for goods and services. Understanding consumer buying habits and payment choices in a changing world is critical for the survival of many smaller businesses.

In this report 81.4% of consumers said that merchants who are not accepting debit cards and credit cards would soon lose their business if they did not make a change.  The survey also revealed that 80% of the consumers said they would be very unhappy with any merchant that started charging additional fees for the use of a credit card or debit card in their store.

Where the largest change is yet to happen

The survey shows that the group considered as the unbankable will be using some type of debit card in the near future and that by early 2008 98% of the United States consumers will no longer be using cash or checks. The major change to come involves 36.9% of the American population over the age of 18. It is expected that this huge 1/3 of the consumers will change their payment means to stored value debit cards over the next 4 year period.

There currently are several debit card providers in the stored value product market. Both MasterCard and Visa have a stored value debit card, which allow marketers to private label. Others have developed their own products and a total network.

What is the difference between a bank debit card and a stored value debit card?

A bank debit card is attached directly to a checking account. People with good credit have overdraft protection that allows certain flexibility, but comes with fairly high fees and costs. The stored value debit card is different. Money deposited on the card is placed in an aggregate bank account for safe keeping along with the money from thousands or millions of other cards. Through sophisticated, secured, accounting technology and software, licensed processing companies monitor in real time the activity of each and every card by account number. They record and report every transaction. When money is loaded to a card, they electronically deposit it into an aggregate bank account for safekeeping. When money is drawn from an ATM machine or a purchase is made at a P.O.S. terminal, the processor electronically transfers funds from the aggregate account to the merchant’s account and records the transactions and related fees.

Unlike setting up a bank account, anyone can obtain a stored value debit card by simply filing out a short application and proving identity. This card is truly the answer for the unbankable plus those who have a problem controlling their spending habits. 

A few consumers, who are experiencing financial difficulties, prefer using a stored value debit card over their bankcard because of security and access to emergency cash. A creditor can lien a regular bank account; however, he cannot lien a aggregate account.

Many consumers find using a stored value debit card to be less expensive than the bank fees they experience from NSF checks, stop payment transactions and many other similar transaction fees. Stored value products are now in various types and forms and currently create an over 30 billion dollar per year industry: 

Gift Cards
Employer Paycards
Prepaid Phone Cards
Prepaid Debit Card

The money transfer to Mexico is over a 12 billion USD annual business. In past years, Western Union and Money Gram have dominated this market. With the emerging stored value product methods, companies like Walmart, U.S. Bancorp and U.S. Cash have now forced dramatic change, making the industry more competitive and providing a tremendous advantage to the consumers.

One thing is for certain; the stored value product industry is making a tremendous change in cash management across the nation. The industry is here to stay and will be the way payment are made for decades to come for products and services. The stored value product industry could become as large as the banking industry itself.

We are now living in the new technology age and quickly becoming a cashless society.