Consumers' use of debit cards is skyrocketing, escalating a long fight between lenders and retailers on how they want the cards used for transactions.
Use of debit cards, including automated-teller machine withdrawals, has grown 24 percent a year between 2000 and 2003. By comparison, credit card use was up less than 7 percent from 2000 to 2003, a Federal Reserve report shows. Use of checks shrank during that period by 4 percent.
"We are definitely seeing an increase," said Paula Saunders, vice president of marketing for Sun Federal Credit Union in Oregon. "We have experienced at least 12 percent growth every year for the last six years."
The dollar amount of retail transactions by debit cards last year was up 16 percent to more than $4.5 million from the previous year, she said.
Financial institutions urge customers to hit "credit" when making a purchase with the debit card because that saves the institution money. When someone uses a credit card, the card companies charge the store 2 percent fee, and the financial institution gets some of that money.
But when a debit card is used, the financial institution gets none of that fee, one expert said.
Stores, however, want consumers to push "debit" and use their personal identification number because it costs the retailer less.
Frequent user Mark Olnhausen doesn't want people seeing him punch in his PIN and instead opts for the "credit" button on his numerous transactions at grocery stores, restaurants, and dry cleaning stores.
"I use it for as many purchases as I possibly can because it keeps cash out of my pocket and I don't like walking around with my checkbook," said Mr. Olnhausen, an account representative in the Toledo office of SBC Inc.
The increased use of debit cards has created a legal battle between lenders and retailers. Cases are pending. But Wal-Mart last year briefly stopped accepting MasterCard-branded debit cards and negotiated a deal with Visa to pay a smaller fee on each transaction.
Still, credit cards remain the favorite method for purchases. In 2003, the latest year for which figures are available, credit card transactions amounted to $1.7 trillion, compared with $600 billion for debit cards (which includes ATM withdrawals).
Bridget Holt, donor relations officer at the Toledo Community Foundation Inc., started using her debit card when her bank offered her 10 cents for every transaction. It has since done away with that perk but Ms. Holt estimates she still uses the card daily, sometimes several times a day, for store purchases, and weekly as an ATM card.
"It's very easy to use," she said. "Obviously, you need to be disciplined about recording it in your register, but I find myself to be pretty disciplined on that."
Mark Swinehart, head of electronic banking services for Sky Financial Group Inc., estimated "a good, solid 30 percent" increase has occurred in both use and sales volume the last couple of years, and, as consumers get more used to the idea, the size of transactions is shrinking.
"Believe it or not, I've seen a 20-cents transaction," he said. "That's not something that I would advocate, but people are using them more as a cash and check replacement."
MasterCard International Inc. reports that U.S. cardholders last year generated nearly $42 billion in transactions on debit cards, up 33 percent.
Through the first three months of last year, Visa USA Inc. reported $346 billion in sales volume on its debit cards.
Debbie Ross, an executive at Loss Realty Group Inc., said she likes using her debit card.
"I think it's quicker than writing out a check and I don't have to carry a whole bundle of cash with me on vacation and I don't have the hassle of trying to write an out-of-state check," she said.
Contact Mary-Beth McLaughlin at