By Samantha Paxson

Especially now, with more payments mechanisms than ever before, individual payments products often compete for the attention of their issuers. Strategists after daily customer touchpoints argue the financial institution should focus on optimizing things like debit cards and digital wallets. Colleagues after increased revenue, on the other hand, fight for greater investment in credit card and buy-now-pay-later programs. Research shows, however, that engagement and revenue outcomes are only part of the picture.

A new behavioral science study looking at the psychology behind payments indicates that focusing on one area of the portfolio over another may also influence the type of consumer an FI attracts.

To better understand the conscious and non-conscious factors that influence payment choices, Co-op Solutions and Mastercard partnered on a study of more than 1,200 FI cardholders. The proprietary study contributed to a white paper prepared by Co-op (“CU Growth Outlook”) available here. Researchers were after science-backed insights into what drives the decision to use a credit card versus a debit card.

Science Shows Choice Runs Deeper than Top-of-Wallet

They learned that payments choice is rooted much deeper than which piece of plastic is at the top of a wallet or set as default with an online retailer. Instead, they found people’s core attitudes and goals towards finances were among the most powerful influences behind the choice to use one payment mechanism over another.

Armed with this intelligence, issuers can draw a straighter line between payments strategy and the type of consumer they most want to attract. Naturally, this may change over time, which is what makes the well-rounded payment portfolio an ideal area of focus when designing diverse growth strategies.

Here is some of what the researchers uncovered: 

Credit Users See Money as a Stepping Stool: Consumers who view money as a way to enhance their lives, use it to set up future happiness and are mindful of the way they spend their money are more likely to use credit than debit. They see credit as a connection to a financially healthy life. No surprise then that the credit users who participated in the study viewed both the past and present as more financially stable than the debit users in the study.

• 62 percent of credit users agreed with the statement “I view financial responsibility as a way to improve my well-being.”

• 78 percent of credit users agreed with the statement “I consider how things might be in the future and try to influence those things with my daily spending behavior.”

Debit Users See Money as a Finite Resource: Counterparts who see money as a means to take care of their needs, think of money as a single resource and are more likely to spend than save, prefer debit to credit. They view debit cards as an external constraint that prevents overspending. In contrast to credit users, debit users in the study were more likely to feel worse off than one year ago.

• Four in 10 debit users reported having a hard time finding solutions to financial challenges.

• 71 percent of debit users agreed with the statement “Money is a resource to take care of unexpected obligations and needs.”

Debit Users May Need Help Converting Optimism into Financial Success: Despite feeling worse off today as compared to the year prior, debit users also reported feeling optimistic about the future. Given some of the other behaviors and attitudes discovered among this group, researchers concluded that debit preferers may not have the skills needed to convert that optimism into actual success. These included less experience with budgeting and planning ahead. This may indicate an opportunity for FIs to bundle financial wellness programing with transactional payments products, or at the very least, tailor their financial wellness programming to the distinct needs and preferences of its debit cardholder base.

• 64 percent of debit users said they find it hard to stick to a spending plan.

• 60 percent of debit users admitted to being worried about running out of money in retirement.

Inflation is Keeping Debit Volume in the Lead: From a transactional volume perspective, debit continues to lead the way, as more consumers turn to debit for personal purchases and bill payments. The cost of living is no doubt helping to keep debit cards in a leadership position; many of the participants in the Co-op/Mastercard study said they were greatly concerned with inflation.

• 80 percent of credit card users and 83 percent of debit users said they were worried about inflation; the survey was conducted in January 2023 when the consumer price index was 6.4% and average hourly earnings had fallen 1.8%.

• Just 49 percent of debit users expect financial comfort a year from now versus 59 percent of credit users.

For Some, Perceptions Around Debt Discourage Credit Card Use: The study also compared the attitudes and perceptions of bank customers and credit union members. Although very few differences were uncovered, the credit union members who participated were more likely to see taking on additional debt and high APRs as more of a credit barrier compared to bank customers. This group was also more apt to plan ahead with regard to their finances.

• 41 percent of credit union members said “not wanting to take on more debt” is the main motivator for staying away from credit cards. Just 28 percent of bank customers said the same.

• 73 percent of credit union members said their household plans ahead financially, as compared to 67 percent of bank customers.

Well-Rounded Payment Portfolio Enables Growth Strategy to Flex as Needed

To be sure, not every consumer falls neatly into a psychological bucket. However, studies like these underscore that FIs can influence the mindset of their customer bases by focusing on optimizing and promoting certain areas over others. The payments portfolio, with its vast and growing diversity of products, is an optimal space to apply this strategy.

Say, for instance, an FI is looking to attract people who are optimistic about the future and view money as a stepping stool to that future. For them, dedicating more resources to enhancing and marketing credit-based products may make the most sense. If, on the other hand, the FI’s mission is to meet people where they are to grow their financial acumen, a greater orientation toward debit-like products may be the more strategic choice.

All this to say, a well-rounded payment portfolio with a broad spectrum of money-moving mechanisms ensures an issuer has the flexibility to shift focus as warranted. Using the above example, the mission-oriented FI may find in Year 2 of its execution that more profitable customers are necessary to support investment in less profitable customers. Temporarily shifting attention to credit-product optimization, therefore, may be a smart way to go.

At the end of the day, investing in any payments channel moves an FI closer to earning primary financial relationships with customers. Regardless of the individual product, these tools have become the essential way to capture wallet share and transactional data flow, while earning trust by being there for members in everyday moments.

Samantha Paxson is Chief Experience Officer for Co-op Solutions (www.coop.org), a provider of payments and financial technology for credit unions. You can connect with Samantha at https://www.linkedin.com/in/samanthapaxson/.