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Track Card Transactions, Not the Dow
Experts say there are key trends in credit and debit card purchases that could signal the economy’s recovery.
Debit card usage is slightly on the rise during the current recession.

Quarter-to-quarter sales across the restaurant industry are down, but they could be picking up soon in quick serves, according to a report recently released by Capital Access Network (CAN), which tracks credit and debit same-store card sales throughout the small- and mid-sized business landscape.

“Generally the trend has been down, and among the categories of restaurants, the $25-and-under average-ticket folks are doing better than the other categories,” says Mark Loirmer, chief marketing officer of CAN.

In 2009, CAN saw an 11.06 percent drop in credit and debit spending across all the restaurants it tracks. The decline was less pronounced at restaurants with an average ticket of less than $25, where the drop in sales was only about half that at 5.3 percent.

Perhaps more telling than the overall trends for 2009 were the quarter-to-quarter statistics released by CAN.

“The restaurants under $25 average ticket, they were actually growing through the end of the first quarter of 2009, although at a very small rate,” Loirmer says. “They dropped off in Q2 ’09 by a little over 6 percent, and in Q3 ’09 that rate of decline slowed to about 5.3 percent.

“If that trend continues, they may have hit the bottom of their decline.”

Despite its declines, the restaurant industry still fared better than most retail businesses CAN tracks; nonrestaurants suffered an 18.5 percent decline in sales in 2009.

The way consumers have been paying for their bills also offers some insight into when restaurants might see relief.

“We have not seen a great deal of movement in the mix between credit and cash,” Loirmer says, “but we have seen a slight uptick in debit as time has gone by.”

According to Tahira K. Hira, a professor of personal finance and consumer economics at Iowa State University, increased reliance on debit cards rather than credit cards is to be expected during a recession.

“Usually people use credit cards to extend themselves out a little bit because they know the money will come later,” Hira says. “They might not be in that mental state anymore.”

While credit cards become less appealing during tough economic times, debit cards allow users to withdraw money from existing funds but still offer the convenience of a credit card.

“It’s a card that allows people to keep their behavior under control,” Hira says. “There might be people who use more debit cards today than they did before because they don’t want to extend themselves out beyond their means.”

Visa has logged similar credit and debit card usage trends.

Spending on Visa debit cards in the U.S. surpassed credit for the first time in the company's history during the last three months of 2008. Today, debit purchases comprise about 70 percent of Visa’s U.S. transactions.

Today, debit purchases comprise about 70 percent of Visa’s U.S. transactions.

“Visa merchant programs like No Signature Required, which waives the signature requirement for qualifying Visa transactions less than $25, have also helped to increase debit’s popularity,” says Ted Carr, a Visa spokesman.

According to Visa, customers are particularly fond of using debit cards in restaurants.

“We’re finding that consumers prefer to pay for smaller purchases with their debit cards,” Carr says. “Consumers are increasingly turning to debit cards for nondiscretionary purchases like food.”

Hira says that an eventual return to credit cards among consumers could be a sign that the economy is picking up.

“There might be a bit more relaxation of customers, and there might be a bit more charging on the card,” she says.

But only time will tell if debit card usage will go back down to pre-recession levels.

“My sense is that people who are using debit cards more than the credit cards might just stay in the habit even after the economy recovers because they’ve discovered it helps keep them in control,” Hira says. “We’ll have to figure it out in a few more years.”

Robin Van Tan is a contributor to QSR's online exclusives.