The rapid rise of the debit card threatens to eclipse the credit card's long-standing dominance of the industry. The timing of the introduction of this product in the United States and elsewhere is largely responsible for the differing usage patterns described in Chapter 6, creating varying substitution effects between debit cards on the one hand, and credit cards, cash, and checks, on the other. Differing patterns have led to payment card markets that have different levels of segmentation and, as I argue in Part IV, different policy implications.

Comparative Origins

New payment products are notoriously difficult to deploy because they depend on simultaneously building networks of issuers and users. The success of any new payment system depends on quickly achieving a critical mass of users, eclipsing the possibility of widespread acceptance of more efficient but later-developing systems. Thus, once credit card networks were established in the United States, it became difficult for alternative systems to attain a high-use equilibrium because the relative benefits of adding a new product were much smaller than the relative benefits of adding cards when they were the initial electronic payment system.

Although the debit card had to compete from the start with the credit card and also with cash and checks (the principal POS payment devices at the time), the debit card benefited from the existing credit card infrastructure, specifically the American banks and cardholders already accustomed to using Visa and MasterCard credit products.