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Debit is Growing |
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O PSI
Global cited 1990 and 1997 Bank for International Settlements (BIS) data
which reports that U.S. checks have lost an 8% share of the non-cash
payments market, while debit has grown from zero to 4% of non-cash
payments. Interestingly,
according to the BIS data, from 1990 to 1997 Germany and the U.S. both
suffered slower debit growth relative to some other countries, such as
Canada and the U.K. Chain
Store Age discovered
in its Survey of Retail Payment Systems conducted in December 1999 that
while 100% of retailers accept cash and 98% accept checks and credit
cards, only 70% report that they accept debit cards. However, these
acceptance numbers change very dramatically when the nation’s retailers
report the percent of their sales that are actually conducted by these
payments methods. Cash is reported to make up 35% of all sales, credit
cards 25%, checks 21%, and debit only 8%. One
of the chief reasons cited in the Chain
Store Age
survey for why debit has had less than spectacular growth in the U.S. is
cost. Interestingly, the cost varies greatly between the on-line debit
product (ATM-PIN based transactions) and the off-line version cleared
through the bankcard networks. While
the chart on page three helps to illustrate the great difference in
pricing between on-line and off-line debit, actual costs are complex and
depend on both the average ticket and business type. As an example, while
retail off-line debit costs can range from 1.25% plus 10 cents to 2.65%
plus 10 cents (interchange), regional on-line debit networks will likely
be 10 cents a transaction, which is a combination of transaction fees,
authorization fees, or issuer reimbursement fees. This means on a $100.00
ticket, the off-line pricing would be a low of $1.35 to a high of $2.75,
while on-line debit would cost 10 cents. Midwest
Payment Systems conducted a survey which addressed merchant concerns about
off-line debit. Merchant concerns included cost, cardholder confusion, PIN
pad requirements, cardholder fees, misleading campaigns, security,
regional network extension, and payment system monopoly by Visa and
MasterCard. This feedback serves to reinforce the reasons behind the
Wal-Mart and National Retail Federation suit (which has now been certified
for all merchants in a class action against Visa and MasterCard), the
antitrust suit by the Justice Department, and even the recent consumer
suit, which seeks to represent consumers as a class injured by off-line
debit. While
debit certainly has its supporters, the U.S. rollout of debit has been
very poor. There is a general sense that if debit had remained a PIN-based
program, any consumer with a checking account could have had access to the
product, and the risks of broad based issuing would have been minimal.
This, in fact, was the industry direction on a regional basis. While the
fee structure ($.10-$.20) was low, retailers were required to make
significant PIN pad investments for on-line debit to be universally
accepted. Off-line
debit rolled out as an alternative solution. As a product which would
piggyback the credit system, it seemed that off-line debit would get a
debit card in nearly everyone’s hands, and an interchange-like fee
structure would make it profitable for issuers. This solved the PIN pad
problem, but it also increased costs more than retailers thought was
appropriate. Of course, we can’t forget that most issuers either blindly
mailed debit cards to consumers, or replaced their ATM cards with little
or no explanation, making an understanding of where off-line debit could
be used, or even how it worked, very murky. Massive
growth of debit in the U.S. is still likely to take some time, but
everyone sees that debit is growing. With consumer education still needed,
and major lawsuits pending, it may be some time before all the dust
settles. In the meantime, some retailers are planning to move ahead alone.
As an example, Kmart is coming to the end of a three-year upgrade of its
in-store systems. One of the ambitious project goals is to be able to
determine, from a card swipe, if the debit card could be handled as an
online card, and prompt the consumer to use the card online. Other
retailers are talking about incentivizing store personnel to encourage
consumers to use debit and the online version. While retailers continue to
look for such opportunities to drive down their costs, it will be
interesting to see how consumers react.
© Copyright 2000; The Green Sheet, Inc. |
