RICHMOND, Va.-The recent move by Visa and MasterCard to increase fees merchants pay on small-ticket debit buys has raised concerns that retailers will institute purchase minimums.
Yet some industry observers are not so sure that will happen.
George Peyton, VP of government relations for the Retail Merchants Association, predicts merchants will "get creative. I think you will see some offer incentives to pay with cash. Pay with cash and get a few dollars off your next purchase.
"Merchants want someone to come to their store and have a good experience. You don't want to hit them with an axe when they walk in," Peyton said. "It's better to extend a carrot. Incentives can go long way toward building that repeat business retailers love."
Peyton also believes that some of the savings merchants will see from the Durbin Amendment will get passed back to consumers due to retailers' competitive nature. "In today's world of retailing, merchants look for every way they can to be a little better than their competition. One way to do that is if you save on the transaction cost you can lower the price on something, advertise that, and be a little bit better that your competitor next door."
Ron Silvia, VP of debit, ATM and prepaid products for the St. Petersburg, Fla.-based PSCU, like many payments experts Credit Union Journal spoke with, believes it is hard to say what merchants will do. "It remains to be seen the actions they will take. But with all the debit transactions flying through your store, do you want to stop that? Push consumers back to cash? Consumers are not going back to cash. Once you get someone into the debit habit, it sticks. They use the card and don't stop. Are retailers really going to upset the apple cart?"
Silvia noted that debit is clearly the payment form consumers want, having quickly surpassed credit. "So what does that tell you? People use credit for what they want to use credit for and they use debit for what they want to use debit for."
However, a number of others believe a purchase minimum is coming that will eventually affect credit union debit volume. Leanne Phelps, SRVP of card services for the $24-billion State Employees' CU in Raleigh, N.C., expects merchants to institute a purchase minimum that will result in a "big inconvenience for consumers."
David Keenan, GM of the Brookfield, Wis.-based Fiserv's ACCEL/Exchange network, noted that small-ticket transactions make up 70% of debit volume, meaning retailers will have to address that expense.
Stan Hollen, CEO of Co-Op Financial Services, meanwhile, observed, "Small merchants are not large PIN debit users. We do think that nationally the large retailers will try to move some debit volume to PIN due to the lower cost."
Yet Silvia holds out hope that debit transaction volume will not be greatly affected by Visa and MasterCard's latest actions. "Debit usage for small ticket items and quick-service restaurant purchases have taken the biggest bite out of cash the last few years. We are finally getting consumers comfortable with debit and to turn around and take that away? If I am McDonald's...I might be happy with the billions I just won by seeing transaction charges drop from 44 cents 21."
