Peter Guidi's Blog

Credit or Debit, the real source of desperation

In Uncategorized on September 10, 2009 at 6:46 pm

The struggle between the Electronic Payments Coalition and the retail industry heated up this week with the publication an advocacy advertisement in the Politico. NACS responded quickly pointing to this advertisement as a sign that their legislative action in congress to control interchange fees is succeeding and this advertisement is indicator “of EPC desperation” While the EPC may be desperate, there are 2009 market trends that indicate that changing consumer behavior is the more likely source of desperation.

EPC members (credit unions, banks and payment card networks) have suffered through a chaotic 2009 where they saw declining volumes and increasing losses along with the unknown risks associated with potential regulation. More ominously, 2009 market trends show changing consumer behavior away from the credit to debit which includes a variety of alternative payment systems. Consumers appear to be making these changes because of reductions in available credit, and/or shifting consumer attitudes pertaining to debt and household financial management.

These trends are reinforced by metrics that show decreased participation in credit card reward programs matched by a corresponding increase in the use of debit card reward programs. Further consumers have become wary of new FI loyalty programs with the majority rejecting higher interest card products that offer loyalty rewards.

While the retail industry is focused on lowering credit card interchange, the consumer is moving towards debit. The transaction/payment industry understands this trend and so while the retail industry is focused on lowering credit card fees, the cost and usage of debit is rising. The old adage about winning the battle and losing the war may prove to be true as consumers abandon credit and move to debit.

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