http://www.federalreserve.gov/pubs/feds/2006/200616/

Debit Card Use by U.S. Consumers: Evidence from a New Survey

February 10, 2006, by Ron Borzekowski, Elizabeth K. Kiser, and Shaista Ahmed

The Federal Reserve Board found to no surprise that debit cards serve as a substitute primarily for cash and checks.

The probability of using debit cards decreases with age and increases with education.  Women use debit cards at a higher rate than men. Convenience is cited overwhelmingly as a main reason for using debit cards. The frequency of debit card use is also higher for households with children.

In addition, consumers respond negatively to fees charged for debit card transactions. The fee charged by banks for PIN-based debit transactions does appear to steer consumers away from PIN debit and toward signature debit. In addition, fees also appears to dissuade consumers from using debit cards at all: A fee that comprises less than 2 percent of the average purchase amount is associated with a 12 percent reduction in the likelihood of using the card. Because the fee is charged after the transaction rather than at the point of sale, the Study viewed this price response as a lower bound on the consumer response to payment method surcharges.

For about 6 percent of debit card holders, debit used as a method of behavioral restraint. However, consumer use of debit varies with household financial conditions and expectations about the future: Respondents are more likely to use debit cards if they have negative expectations about their future financial condition, and are more likely to use credit cards rather than debit cards if their financial situation has worsened recently. Thus, consumers appear to have an underlying preference for spending from liquidity, and use credit as a source of liquidity during periods of financial stress.

See also Bank Rate Monitor: http://www.bankrate.com/brm/news/check_card/20070312_check_card_analysis_a1.asp