Potential effects of an increase in debit card fees

Joanna Stavins

Public Policy Brief, 2011

Abstract: Recently announced changes to debit card interchange fees could lead to an increase in the cost of debit cards to consumers. This brief analyzes the potential effects of an increase in debit card fees or in bank account fees by using the results of the 2008 and 2009 Survey of Consumer Payment Choice (SCPC). The main findings are that: 1) consumers with the least amount of education (less than a high school diploma), the lowest annual income (below $25,000), and the youngest age (under 25 years) consider cost to be the most important payment characteristic. It is probable that these consumers would be most affected by an increase in debit card fees, and most likely to change their payment behavior in response; 2) the cost of debit seems to be an important factor affecting consumer payment decisions: consumers who rated the cost of debit cards as low relative to the cost of other payment methods were significantly more likely to adopt and to use debit cards; 3) credit cards were viewed as the closest substitute for debit cards. If the cost of using debit cards rises, consumers are more likely to substitute credit cards for some of their debit card transactions; 4) consumer reaction depends on the type of fee increases: an increase in the cost of debit cards specifically is expected to have a greater effect on debit card use than a broader increase in the cost of maintaining bank accounts; and 5) an increase in the one-time cost of debit card setup could lead to a substantial decrease in the rate of debit adoption.

Keywords: Debit; cards (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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