The Wallet Wars — Part 1

Ever wondered how people use credit cards, debit cards and cash? Which is used more often? How do people choose between these while making a payment? 181M Americans are predicted to own credit cards in 2010[1]. At the same time debit cards also seem to be widely used. I was curious to understand what the trends in this segment really were. At Compete we decided to analyze this segment and better understand payment mode decisions people make. I conducted a survey of credit card owners, with over 1,300 respondents, and found some interesting trends.

My initial findings were somewhat surprising. While credit card usage appears to be frequent and common, our survey indicates that credit cards are still not the primary mode of payment. Chart 1 below shows frequency of credit card usage. As can be seen in the chart, nearly half of credit card owners use a credit card fewer than three times a month, and only 16% of credit card owners use a credit card more than seven times a week. Increasing this low usage frequency presents an opportunity for credit card issuers to improve their revenue potential.

So what do credit card owners use to pay"¦

"¦ Debit or Credit?

How do debit cards compare with credit cards? To understand this aspect, I looked at debit card ownership and usage relative to credit cards. In many cases, debit cards are used to introduce people to the concept of using a card instead of cash — a factor that fuels greater credit card usage as well. However, I found that a large proportion of credit card owners — 81% — also own debit cards. In other words, four in five credit card owners also owns a substitute product.

Ownership of debit cards among credit card owners is skewed towards certain demographics. Chart 2 below highlights these skews. For example, debit card ownership skews towards women and a younger demographic. However, those with a household income of less than $60,000 are less likely to own a debit card.

Chart 3 represents mode of payment used for the various types of expenses. As is clear from Chart 3, credit cards are generally used for travel and other more expensive, but less frequent, purchases. For comparatively less expensive products/services such as groceries or eating out, all three modes (credit, debit and cash) seem to be commonly used. However, debit cards seem to be more commonly used for such expenses as compared to cash. For smaller expenses like buying a coffee or for going for a movie, however, credit card holders still prefer to use cash.

In essence, while credit cards have a broad distribution, debit cards are used for specific types of purchases and are used much less frequently as substitutes than I had originally thought. However, to increase frequency of use, credit card issuers could try to get more card holders to use their credit cards for smaller expenses like groceries, common personal items, as well as small daily expenses like a coffee.


  • The competition for share of wallet is still open — although widely distributed, credit cards are still not the primary mode of payment
  • Credit card issuers must target increasing the usage of each credit card instead of just focusing on increasing number of credit card holders
  • To do so, they need to find different ways to make it more attractive for card holders to use credit cards for most expenses. Carving niches for usage may be one approach for card issuers to drive further differentiation and usage. For example, co-branding with frequently visited points of purchase may help drive more usage of their cards

This is the first in a series of four blogs that Compete will publish on trends in the credit card industry during March-April. In April, Compete will also publish a whitepaper with more details on trends discussed in these blogs. To receive this complimentary whitepaper, please email your request to

[1] "According to data from the U.S. Census Bureau, there were 159 million credit card holders in the United States in 2000, 173 million in 2006, and that number is projected to grow to 181 million Americans by 2010. (Source: Census Bureau)" Source: