Summary
Card payment product use in lieu of cash for small purchases is likely to accelerate, feeding payment network transaction growth.
Analysis
The U.S. is considered a mature card payments market. Nevertheless in spite of widespread general-purpose card adoption by consumers and merchants, a majority of payment transactions are still cash and paper check based.
Small purchases have long been the realm of cash. There are 350 to 400 billion cash transactions under $25 annually in the U.S. However, credit, debit and prepaid electronic payment products are starting to whittle away at cash's small-purchase-transaction share.
In the last several years there has been a sea change in consumers' and merchants' attitudes.
According to Ipsos research conducted for Peppercoin, from September, 2004 to October, 2005, Northeast consumers' willingness to use credit cards to buy a cup of coffee doubled.
MasterCard, Visa and First Data all adjusted transaction small-payment pricing, significantly reducing the fixed component of interchange, making their products more palatable for merchants. The payment networks and banks long resisted pricing adjustments necessary to win a greater share of small transactions, viewing them as not being economically attractive.
For merchants, card use increases consumer spend and reduces breakage.
For small purchases, cards are more convenient and faster than cash.
MasterCard and Visa eliminated signature requirements for most purchases under $25.
Contactless cards are enhancing cards' ease of use for consumers and merchants.
Using a contactless or mag stripe credit card for a fast-food purchase is faster and more convenient , and arguably less expensive for the merchant, than cash.
Consumers are increasingly rewarded and habituated to using cards to earn rewards, and to avoid the need to carry cash.
Sectors such as vending machines and parking meters, long the exclusive domain of cash, are being card enabled.
For small Internet transactions such as online gaming, music downloads, and content, cash is not an option. According to Ipsos the number of Americans between 18 and 34 making online purchases under $2 between 2003 and 2005 increased 250%, albeit off a small base.
Electronic payment products should enjoy heady small payment transaction growth.
