Visa CEO sees debit cards charging forward

Americans have long loved to use plastic when buying stuff. And increasingly the cards they're using are debit cards, data released by Visa (V) and Mastercard (MA), the two largest card networks, show. But is that shift sustainable?

Visa CEO Joe Saunders sure thinks so. That's what he told analysts and investors in a conference call Tuesday after his company announced quarterly earnings that exceeded the market's expectations. Debit card use will continue to grow, and "I don't think there's any question about that for a lot of reasons," he said.
Though he didn't enumerate those reasons during the call, they're not all that difficult to figure out. And he clearly sees consumers' growing preference for debit cards as an opportunity. That makes sense, given that the fees Visa collects on transactions over its network account for 43 percent of its revenue. And debit payment volume, or the value of purchases made with the company's debit cards, is growing while credit volume falls.

First, consumers are deleveraging. Federal Reserve data released Oct. 7 show that revolving debt, of which the lion's share is made up of credit card balances, fell in September for the seventh straight month. Faced with rising unemployment and still concerned about home prices that are some 30 percent below their 2006 peak, according to the closely watched S&P/Case-Shiller Index, Americans are borrowing less.

What's more, they're also spending less on big-ticket items, according to Census Bureau figures. Look at something people often charge for an example. Purchases of TVs and appliances fell 12.1 percent in August from a year earlier. Meanwhile, food purchases have dropped less than 1 percent over the same period.

Consumer outlays may have picked up last month, according to Mastercard SpendingPulse, a service that examines spending across all payment methods. But even then, they've leveled off at "2005 levels," Vice President Michael McNamara told the Associated Press a couple of weeks ago.

Finally, credit card issuers have been hit hard by the souring economy and face increased regulatory scrutiny. They're racing to raise fees and change interest rates before new rules come into affect next year that could limit such steps. And Fair Isaac Corp., the company responsible for the ubiquitous FICO credit scores, reported in August that 24 million cardholders in otherwise good standing saw their credit limits slashed by an average of $5,100 in the six months ending lats April.

Add it all up, and Visa's Saunders is likely hoping that debit card use gets only more popular.
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