Personal finance predictions for 2010: Your debit card

If the forecast looks grim for your credit card in 2010, it's decidedly sunnier for your debit card.

Two years ago, the total volume of purchases to Visa debit cards was larger than those made to its credit cards. In short, debit finally beat the pants off stodgy old credit.

The steady migration to debit cards over the past decade turned into a sprint once the recession kicked in. Amid the economic chaos, consumers shunned credit cards in favor of the pay-as-you-go convenience of debit cards tied to their bank accounts. The move was a no-brainer for younger consumers who have never used anything else.

Patricia Hewitt, director of debit advisory practice for Mercator Advisory Group, says the rise of debit has increased expectations for a second act.

"The debit card is now a mature payment product, which is amazing in such a short time," says Hewitt. "We see it going into the next stage, which is to innovate. New markets have to open up for it. I don't think loyalty itself is going to drive it there."

Debit has an undisputed king perk in cash-back rewards. Programs such as Bank of America's Add It Up enable debit cardholders to earn cash back on top of retailer discounts.

"That's continuing to be very popular and will be even more popular for the next year or two, if not beyond," Hewitt predicts.

Another program on the rise is debit savings. Programs such as Bank of America's Keep the Change slowly trickle money into a savings account, either by rounding up debit card expenditures or transferring money from checking to savings with each debit purchase.

At a time when credit card issuers are questioning the expense of their rewards programs, debit programs are making their rewards programs more robust by tying in services such as auto bill pay and paperless billing, adding reward customization and targeting offers to a cardholder's interests and spending habits.

"The home run in those programs is the ability to really mine data to understand where a consumer is purchasing, what they're purchasing and when they're purchasing it," says Hewitt. "You may be offered a slightly different set of discounts than I'm going to get as sophistication grows."

The future of debit this year may look something like Citizens Bank Greensense, a themed paperless debit card program that leverages a range of banking services under an environmentally friendly theme.

Many consumers still shy away from using their debit cards online, despite the fact that Visa and MasterCard have extended their zero liability fraud protection to branded debit cards. Expect further incentives this year aimed to convince you to use your debit card online.

"The take-away message for me this year is, know your customer," says Hewitt. "Not just to push something at them, but to really understand what is going to resonate with them and build something around them."

Next in the countdown, 7:  Your rewards

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