Credit cards are replacing debit for millennial shoppers

The disappearance of cash is the most visible change in payments over the last few years, but not the most important

Hands typing a credit card number into a laptop

(Digital Vision/Getty)

The payments landscape is shifting fast in Canada as new technologies enable new consumer habits. The decline of cash is one of the more visible effects, but the most recent quarterly review from the Bank of Canada has found that increased use of credit cards is eating away at conventional debit transactions as well, particularly among millennial consumers. This chart from “The Use of Cash in Canada” illustrates how debit transactions declined—both in the number of transactions and their total dollar value—between 2009 and 2013:

Chart showing the proportional share of various transaction types by volume and by value.

The spike in credit card use is linked to the rollout of new payment technologies, which are gaining popularity with young people. Credit cards enabled with contactless technology no longer require holders to swipe the magnetic strip or sign a receipt. Designed to mimic the convenience of cash, the cards come with a microchip that can complete a transaction within seconds with only a wave or tap at a payment terminal. Reinforcing consumer behaviour is that more merchants have invested in newer terminals and now have the ability to process these types of transactions. Startups like RentMoola are even shifting transactions like rent payments onto credit cards.

Millenials aren’t limiting credit cards to big-ticket purchases, either. Paying with cash for basic goods and services—researchers counted entertainment, gas, groceries and clothes among other services—seems to be falling out of favour with the 18-34 set.

For the study, the BoC commissioned a survey in 2009 and again in 2013, requiring participants to record all their cash and non-cash payments over a three-day period. Researchers compared the data against other indicators, such as aggregated cash withdrawals from automated bank machines. Overall, contactless credit card use was more prevalent than contactless debit card use at 33% and 9% respectively. Forty-eight per cent of respondents had also used a “stored-value” card of some sort (a pre-paid credit card, for example).

In the near-term, having to process more credit card payments could eat away at the margins of small businesses. In November 2014, after much lobbying by the Canadian Federation of Small Businesses, Visa and MasterCard committed to reducing interchange fees—the charge merchants pay for accepting credit cards—from 1.65% to 1.5% over a five-year period. However, some critics say the fees are still too high.