The Digital Evolution of Debit POS And ATM Cards

Digital payments on debit are rising inexorably, but that doesn’t mean banks can’t leverage their strengths in ATM deployment.

Debit cards are incredibly versatile.  What started as a device for initiating transactions at ATMs has morphed into a tool for in-store and online purchases, bill payments, money transfers, mobile-wallet funding, and, still, a few ATM transactions.

The Durbin Amendment mandates that debit cards participate in at least two unaffiliated payment networks. Financial institutions select these networks based on which providers are best able to support their cardholders’ needs across this spectrum of use cases.  As consumer behavior evolves, migrating away from cash and toward electronic payments, banks and credit unions are placing ever greater emphasis on networks’ point-of-sale capabilities and economics.

To detail this change, FSG Insights analyzed data on how consumers use their checking accounts.  We have a proprietary panel that tracks tens of thousands of U.S. consumers’ DDA activity every month, supporting both time-series analysis as well as segmentation by demographic profiles and usage patterns.

This article examines trends in debit POS and ATM usage over the past six years, from 2018 through the third quarter of 2024.  By understanding the dynamics underpinning these changes, financial institutions of all sizes will be better positioned to navigate this important component of the consumer-banking relationship.

Debit Card Spending

One of the most telling indicators of changing financial habits is the average monthly spend per active debit card (Figure 1).  From 2018 to 2024, there has been a significant increase in average debit spend, rising from $1,105 to $1,393 per card per month – up 26% over these six years.

Consumers have increased their spending via debit every year, except in 2020, when there was a noticeable decrease due to the COVID-19 pandemic and associated lockdowns.  From 2021 onward, there have been steady year-over-year increases as debit continues to gain an ever-greater share of consumers’ wallets.  Today, 45% of all debit card spend is card-not-present, and 7% is initiated by a mobile phone (where the debit card has been pre-loaded as the default payment method).

Debit Card Revenue

Growing debit use not only reflects consumer payment preferences, it also drives greater non-interest income for financial institutions.

Debit card issuers with $10 billion in assets or greater are covered by an interchange cap determined by the Federal Reserve.  Debit card spending by customers of these banks and credit unions represents approximately 64% of total industry debit spend.  Smaller financial institutions are exempt from the interchange cap. The interchange income these issuers receive is directly influenced by their choice of networks.

A recent study estimated the debit interchange income received by these two segments of debit card issuers, as shown in Figure 2.

As we enter a period of declining interest rates, putting pressure on net interest margins, financial institutions will likely focus even more on their debit portfolios.  Leading issuers optimize their card base across the full lifecycle of penetration, activation, and usage. They track their processor and network performance to ensure competitiveness, and they actively manage fraud while investing in superior digital experiences.

ATM Cash Withdrawals

Within their checking accounts, financial institutions’ primary focus is on optimizing debit card spending.  Active debit card holders conduct more than 30 POS transactions per month. By contrast, consumers perform ATM withdrawals at the rate of less than one per month.  Moreover, every POS purchase generates revenue for a financial institution, while every ATM transaction is an expense.

Nevertheless, consumers continue to use cash, and ATMs are a convenient mechanism for dispensing this cash.  The question for every financial institution, therefore, is how to best meet this demand.

Broadly, banks can choose from one of four strategies to provide ATM access to their customers (see Figure 3).

At one end of the spectrum, banks can deploy their own ATMs, placing terminals inside branches to support migration away from tellers and also off-premise to provide additional, convenient cash access.  Each of the largest banks owns and operates thousands of ATMs, providing extensive fee-free options for customers (and, indirectly, providing an incentive for consumers to choose to bank with these FIs).

Purchasing and operating ATMs is a high fixed-cost, low marginal-cost proposition.  As more customers use a particular ATM, the cost per transaction steadily declines.

Conversely, banks and credit unions with (relatively) small customer bases do not have sufficient scale to achieve competitive per-transaction economics. Alternatively, many digital banks have large customer bases, but these are distributed nationwide, and therefore they lack customer density in any specific geographic location.

For these small-base FIs, another approach to meeting their customers’ ATM cash-access needs is to use surcharge-free networks, such as Allpoint and MoneyPass, or to offer surcharge reimbursement.

ATM Surcharge Reimbursement

According to Bankrate, in 2024, the average ATM surcharge fee is $3.19.  For financial institutions, the most “pro-consumer” strategy is to offer surcharge reimbursement.  Rather than try to deploy ATMs across the country, a bank can simply say “use any ATM that you want, and we will reimburse the surcharge fee.”

Costly?  Yes.  Convenient?  Yes.  But is it more costly than deploying ATMs that will rarely be used?  And do consumers place a premium on this convenience, seeking banks or accounts that offer this feature?

Today, the fees on 10.1% of all surcharged ATM transactions are reimbursed (see Figure 4).  At an industry level, this percentage has been slowly ticking upward, largely as a result of the growth of digital challenger banks.

There is a significant difference in reimbursement strategy between large and small financial institutions.  Small FIs consistently offer higher reimbursement rates than large FIs, and the gap has only widened in recent years (see Figure 5).  In 2018 there was a six-point differential, whereas now the differential has grown to be more than nine percentage points.  In fact, following a small uptick for large FIs in 2020, the surcharge reimbursement rate is only slightly higher now (6.0%) than it was in 2018 (5.2%), whereas the reimbursement rate for small FIs has increased notably, from 11.4% in 2018 to 15.3% in 2024.

The difference in reimbursement rates between large and small FIs suggests diverging strategies in managing ATM networks and customer relationships.  Small FIs typically have far fewer ATMs, so by offering reimbursements for ATM surcharges they are able to somewhat level the competitive playing field.

Conclusion

The decreasing use of ATMs, coupled with the growth in debit card spending, paints a picture of a rapidly digitizing financial ecosystem.  However, the persistence of cash usage, albeit at lower levels, and the increasing focus on ATM-fee reimbursements demonstrates the ongoing importance of ATM services and the need for a balanced approach.

For all FIs, staying ahead of these trends is crucial.  Understanding the shifting dynamics of how consumers interact with their money—both digitally and in cash—across different types of situations will be key to meeting future needs and challenges in the evolving world of retail banking.  As consumer preferences continue to change and competitive pressures mount, innovation, adaptability, and a nuanced understanding of diverse customer needs will be critical factors in determining future success.

—Joel Stanton is president at FSG Insights.