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Tradition gives debit an edge in much of Europe

For university student Erin Snodgrass, paying for meals while she was studying abroad in Europe came with a little confusion, some complication — and in a few cases, negotiation.

Near her adopted school in eastern Europe, cash ruled. As she traveled west across the continent, cards became more acceptable, and then by the time she got to the United Kingdom, contactless had overtaken cash.

And in nearly all cases, debit was preferred to credit.

Snodgrass was studying in the Czech Republic, but she learned that preferred payment type differed, often greatly, according to which country she was in — an observation that is borne out in the statistics.

According to the European Central Bank, the rate of adoption of credit and debit cards varies by nation, with eastern and central Europe largely preferring cash transactions. But when it comes to cards, debit ruled nearly everywhere on the continent.

European Central Bank sign in Frankfurt, Germany
A euro currency symbol sits on a Eurosystem sign outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, on Thursday, Jan. 19, 2017. The ECB left its quantitative-easing program unchanged as policy makers wait to see if a pickup in inflation will be sustained. Photographer: Krisztian Bocsi/Bloomberg

The United Kingdom, France and Germany all also preferred debit, but they do tend to be much more credit friendly.

For example, in 2018, 99% of card-based transactions in Estonia and Croatia were done through the debit system. Whereas the U.K. processed 85% of card transactions through the debit system.

But just because credit is more welcome in the U.K., that doesn’t mean it is the preferred method of payment. Debit transactions — and in particular, contactless debit — are the most common types of transaction in the United Kingdom, overtaking cash as the primary payment method in 2017, according to the industry trade group UK Finance.

Part of the reason credit transactions are so scarce in much of Europe comes down to tradition, history and good old fashioned market forces, said Sam Murrant, senior payments analyst for GlobalData.

“In general, it is more that the European consumers don’t have so many credit cards,” he said. “Partially it comes down to cultural attitudes toward card fees, but since so few customers are carrying credit cards, that tends to have a strong bearing on whether a merchant would accept them.”

He said many people in eastern Europe see credit and debt in generally negative terms, whereas attitudes toward credit in the U.S. and U.K. tend to be much more permissive and forgiving.

Bridging the gap between credit and debit across Europe is the emergence of so-called deferred debit cards, Murrant said. Deferred debit cards act much like a charge card, where a balance accumulates throughout the month and then is paid in full at the end of the month. There is no carried-over balance or overdraft function.

Many countries that tend to frown on credit are warming to these deferred debit cards.

Regulation also stunted the growth of credit across Europe. While banks in the U.S. offer juicy incentives like airline miles or points — paid for through relatively high transaction fees — to entice cardholders to swipe their credit over their debit cards, European regulations have made that much more difficult.

Through 2015's Interchange Fee Regulation, the European Union capped transaction fees for both credit and debit transactions — a maximum of 0.2% of the transaction for debit cards and 0.3% for credit cards.

Before that, these fees varied considerably from one European country to another.

But even before those regulations took place, credit cards struggled to gain popularity in many European nations. For example, in the Czech Republic, credit cards were culturally seen as expensive and not really worth getting, said Petra Vodstrčilová, spokesperson for Czech National Bank.

And after the interchange regulations took place, their popularity declined even further, Vodstrčilová said. “Some banks actually stopped issuing them,” she said.

Businesses will ultimately accept the payments that their customers demand, Murrant said.

“If you know most customers will carry cash, you will lose less by refusing card payments. But if you are in a place where people just don’t carry cash, if you are refusing card payments, you are losing money,” Murrant said.

For her part, Snodgrass said she and her friends eventually adapted — but only after spending, by her count, about $500 in ATM fees and international charges on her debit card during her one-semester stay.

“It was frustrating, but we adjusted,” Snodgrass said.

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