Is The Debit Card Revolution Finally Here?

Document Type

Article

Publication Date

1994

Published In

Federal Reserve Bank Of Kansas City Economic Review

Abstract

For three decades, experts on payments systems have forecast the imminent arrival of a completely electronic, paperless payment system. In this vision of the future, households, businesses, and government agencies would replace paper transactions with faster, more efficient electronic payments. The centerpiece of this new payment world is the debit card, a magnetically encoded plastic card that would eliminate cash, checks, and even credit cards in most retail transactions. While some parts of this payment revolution have arrived, in many respects the forecasts have proved to be overly optimistic. The biggest disappointment, thus far, is the debit card. Despite claims of cost savings and greater efficiency, consumers and merchants have been reluctant to switch from traditional payment methods to the debit card. Caskey and Sellon analyze the factors that have limited the debit card's success and examine prospects for future growth. They find that debit cards are likely to experience strongest growth where consumers find them more convenient than other payment methods, where merchants find them to be cost effective, and where consumers do not have access to a full range of payment alternatives.

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