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Cash and Checks Aren't Dead Yet, Presenting an Opportunity for Banks

Consumers are using credit, debit and prepaid cards more and more, according to MasterCard. But banks must improve their mobile payments offerings to further reduce customers' reliance on cash and checks.

Consumer credit and debit card spending increased significantly in 2011, according to a new report from MasterCard. But even as consumers use cards more often, the report said, many cardholders still rely on checks and cash for a large number of payments, creating an opportunity for banks to convert additional payments to electronic channels and capture larger market share.

8 Players Shaping the Future of PaymentsThere never has been more innovation -- and uncertainty -- in the payments space than there is today. But while banks continue to provide much of the infrastructure required to process and support payments, it often seems as if most of the innovation around payments that is capturing the hearts and minds of customers is coming from non-bank players. Bank Systems & Technology's August digital issue peers into the future of payments, identifying the opportunities and threats for banks in the increasingly electronic and mobile market.

Credit card volume increased in 2011 by $185 billion, or 9.5 percent, over 2010, while debit and prepaid card volume increased $199 billion, or 10.7 percent, according to MasterCard's annual report on payment card volume and consumer spending behavior. The report estimated that $152 billion of the growth in credit card volume and $85 billion of the increase in debit and prepaid card volume were due to an absolute increase in consumer spending. These increases, the report noted, continue a trend begun in 2010 of increased consumer spending after the cutbacks seen in 2009 following the financial crisis.

Much of the growth ($75 billion) in debit and prepaid card volume also came at the expense of cash and checks, MasterCard reported. But while consumers increasingly seem to be taking advantage of the benefits that card payments offer, such as credit lines, grace periods and rewards, MasterCard research indicates that consumers with payment cards still conduct more than 50 percent of their monthly household spending with cash and checks.

Caging the Paper Beast

According to MasterCard, many of these cash and check payments are for point-of-sale transactions at supermarkets, pharmacies and doctors' offices. The report suggests that banks can capture a larger share of the payments market by targeting their electronic payments products and marketing -- through partnerships with merchants and new rewards programs, for instance -- toward these types of transactions, while also increasing and incentivizing their mobile payments offerings.

[Fiserv Launches Mobile App for Debit and Credit Card Rewards Program.]

The MasterCard report points to consumers' lingering cash and check transactions as an indication of the unmet need in peer-to-peer payments, adding that banks could increase their total share of small-value transactions with P2P offerings. These P2P services would be most effective if offered through a bank's mobile channel, according to the report.

"In an environment where consumers are looking to manage spending based on their household position (liquidity, available credit, savings, and income), the mobile device is a compelling advance on plastic," the report said. "Mobile gives merchants and issuers a way to gain and maintain customer loyalty by providing consumers with a richer buying experience that includes deals, redemptions at the point of sale, and the ability to effortlessly track spending and saving."

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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