NAFCU Services Blog

Dec 27, 2012 by Chelsea Sisson

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.

Interest in issuer-funded rewards programs is also waning, likely partly due to this new regulation. 81% of regulated issuers do not plan to have a rewards program in the near future. For unregulated issuers – and most credit unions fall into this category - the study showed that the Durbin Amendment/ Regulation II hasn’t significantly changed the debit industry, at least not yet.

In addition to regulatory changes, new technologies (primarily EMV and mobile payments) are on the horizon for issuers. While they are gaining some interest from issuers, most are taking a ‘wait and see’ attitude, especially with regards to EMV. 91% of all issuers are familiar with EMV mandates, but only 25%  plan on implementing EMV in the near future. For mobile payments, only 9% of overall issuers are currently participating in a program, but 47% plan on participating in the near future.

What does all of this mean for credit unions? Opportunity for those credit unions that fall into the unregulated camp of issuers, for one thing. In particular, take a look at expanding business debit programs. Business debit interchange revenue per card for regulated issuers is 85% less than that for exempt issuers. Take a good look at expanding your rewards programs too. Right now, 37% of exempt issuers are not planning on issuing a rewards program, which means that credit unions could help fill that void with consumers. Overall, the news from this study is that things aren’t looking too shabby for credit unions that are willing and able to take advantage of the market opportunities.

Learn more about what is happening in the debit industry, including consumer usage/behavior in this recorded webinar from Discover.

Post written by  Chelsea Sisson, Associate Marketing Manager, NAFCU Services Corp.

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