|Despite New Regulation, Debit Continues to Grow|
Financial Institutions Surveyed in 2012 Debit Issuer Study Expect 15 Percent Growth for PIN Debit, 8 Percent Increase in Signature Transactions This Year
“The latest Debit Issuer Study provides more evidence that growth in
debit remains robust even in the face of significant regulatory
The Federal Reserve’s Regulation II capped the maximum interchange fees
that financial institutions with at least
Impact of New Regulation
Regulation II has two major components: a cap on debit interchange rates
and a prohibition on debit network exclusivity. The interchange cap,
which applies to issuers with at least
The cap on interchange rates has significantly reduced debit revenue; the average interchange rate for regulated issuers declined by 55 percent for signature transactions and by 28 percent for PIN transactions. Issuers’ interest in market growth has shifted from more costly signature debit transactions toward lower-cost PIN transactions. Additionally, issuers are seeking to increase small-ticket, cash-displacement transactions, since revenue is now primarily driven by the number of transactions rather than the amount spent.
“The impact of Reg. II is being felt most strongly by regulated
The new cap on debit interchange caused an 87 percent decline in the rate on business debit signature transactions. Business debit transactions were one of the key growth areas for issuers in prior years but are now unprofitable on a per-transaction basis for some issuers. Some issuers surveyed reported network fees that were almost equal to the effective interchange rate. As with consumer transactions, these effects are limited to regulated institutions.
Given the decline in revenue, there is much less interest in traditional issuer-funded debit rewards programs. Half of all regulated issuers with a rewards program terminated their program in the last year and another 18 percent plan to end or restructure their programs in 2012; another 40 percent do not have a rewards program and do not plan to introduce any kind of rewards proposition.
Growth in the Debit Market
Seventy-six percent of consumers now have debit cards, up from 73
percent in 2010. The average active consumer debit cardholder spent
The debit market is expanding at the low-end, with small-ticket
transactions continuing to displace cash. While the average ticket on a
debit transaction is
Consumer volume grew by 11 percent for signature transactions and 9 percent for PIN transactions, exceeding issuers’ expectations of 7 percent growth in both categories. In the year ahead, issuers expect the market to continue to grow across both consumer and business debit cards, with 15 percent growth in PIN transactions and 8 percent in signature transactions. Sixty-nine percent of regulated issuers and 76 percent of exempt FIs agreed that focusing on improving penetration, activation and usage for debit cardholders is key to growth in 2012.
About the Study
The 2012 Debit Issuer Study is the seventh installment in the
study series. The study provides an objective fact base on debit card
issuer performance and financial institutions’ outlook for the debit
card business. Fifty-seven financial institutions – including large
banks, credit unions and community banks – participated in the study,