What’s Happening to Debit?
I’ve always felt a little guilty when I used my debit card to pay for something like gum at a gas station. Surely, most “normal” people carry enough cash around for small purchases like that; the cashier must be secretly laughing at me for having to pull out plastic for such a small purchase. Turns out, I may be much more “normal” in this regard than I first thought.
We hosted a recent webinar with Discover, the NAFCU Services Preferred Partner for Turnkey Credit, Debit and Prepaid Card Programs, that combed through the 2012 Debit Issuer Study from PULSE, a Discover Financial Services company. According to this study, more consumers are using their debit cards in place of cash, increasing the percentage of debit sales for smaller amounts. The study found that, in 2011, 31% of debit transactions were under $10, 21% were between $10–$20, and 23% were between $20 and $40. Consumers also are using debit more in general. Consumer debit growth in 2011 slightly exceeded issuers’ expectations. For example, for credit unions, 8% growth was projected for 2011 in PIN transactions, and 12% growth was projected for signature transactions. In reality, there was a 9% growth in PIN transactions in 2011 and a 15% growth for signature transactions in 2011. Furthermore, consumer total annual spend for 2011 was 7% higher than total annual spend in 2010. Looks like I’m not the only one who is using my debit card more and more.
In addition, the same webinar dived into overall debit trends. No surprise to anyone, the main driving force of change in the debit industry was Durbin Amendment/Regulation II, especially for regulated issuers. For regulated issuers (at least $10 billion in assets), how they manage their debit business has fundamentally changed. Debit in general is becoming a less attractive offering to these issuers. As required by Regulation II, interchange rates dropped for regulated issuers. As a result, consumer signature interchange rates dropped from $0.52 to $0.24, and consumer PIN interchange rates dropped from $0.32 to $0.23 for regulated issuers. This results in a significant income loss for regulated issuers.
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