Cash is king for consumers amid new debit-card rules

Cold, hard cash is still the easiest way for most consumers to pay for small-ticket goods, especially as merchants try to deflect the rising costs of accepting debit payments.

While 65% of consumers used a credit or debit card for a purchase over the past seven days, nearly 80% used cash, according to a new report from Javelin Strategy & Research.

And if banks tried to impose debit card fees (as Bank of America tried unsuccessfully to do this fall), 32% of consumers said they’d start shelling out cash to buy things. Compare that with the quarter of people who would turn to a credit card instead.

Part of cash’s popularity comes at the urging of retailers and stores who have long encouraged their customers to use the payment method because it doesn’t come saddled with extra fees.

But changing financial regulations, including this fall’s Durbin Amendment, have recently tamped down the revenue that banks can earn from debit card processing – an expected $12.2 billion shortfall, according to Javelin’s estimates.

To compensate, some financial institutions have toyed with fees directed at cardholders – a deeply unpopular prospect with consumers. Others have pushed customers toward credit cards, many sweetened with attractive new incentives.

“The recession led many people to turn away from credit cards in favor of debit and prepaid cards as ways to control debt, but this trend seems to be slowing as the economy stabilizes,” said James Van Dyke, Javelin’s president, in a statement. “Today, there are more conflicting pressures on payment choice than ever before.”

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