Behind the Rise of Debit Cards

From ATMs to Bob Dole, why debit cards are more than a recession trend.

ByABC News
May 5, 2010, 4:43 PM

May 6, 2010 — -- When Farah Patel needs to make a purchase, she often pulls out her MasterCard debit card, which deducts her purchases automatically from her bank account. The 30-year-old Greenwich, Conn. woman said she prefers it to her credit card.

"I don't want to pay for my gas with a credit card and know I'm going to be paying interest on gas," she said.

Click here for debit and credit card tips from "Good Morning America" personal finance contributor Mellody Hobson.

Patel is one of many debit card users who have helped MasterCard reach a new milestone. For the first time ever, the company said, U.S. debit card customers spent as much with their MasterCard debit cards -- $118 billion -- in the last fiscal quarter as they did with their credit cards. MasterCard and others say it's part of the ongoing trend of recession-weary consumers eschewing debt, and just spending the cash they have.

"It's a sign of the times," said Tim Murphy, group executive of core products at MasterCard. "Consumers are concerned about their financial future, even with some indications of some (economic) green shoots, people are spending sensibly, saving more and that, I think, is an important driver of debit spending."

Young people in particular, Murphy said, are seeing debit cards as "a spend management and budgeting tool."

But the use and growth of debit cards dates back long before the recent financial crisis: Visa introduced a branded debit card in 1975. Later, Visa's targeted investments into debit card technology and, more broadly, its work in building a national ATM network helped the card giant make a much bigger push into the debit card business in the mid-1990s.

"The opportunity and the launch of ATMs in the United States helped then to (extend) that convenience further of using a debit card to be able to then go to a retailer and make purchases," said Nikki Waters, Visa's senior business leader in global consumer products.

Visa also raised the profile of debit cards through major marketing campaigns, including a 1997 Super Bowl commercial featuring former Republican presidential nominee Bob Dole. Dole, fresh off his loss to Bill Clinton, appeared in an ad where he was asked to show identification when trying to use a check. The commercial said debit cards, unlike checks, don't require consumers to produce IDs at the register.