Though debit issuers' share prices suffered last week after the Federal Reserve Board proposed its cap on interchange fees, investors then favored automated teller machine makers in anticipation of a shift to cash.
ATM manufacturers and operators saw a modest bump in their stock prices on Dec. 16 after the Fed released proposed rules that would dramatically reduce the interchange fees issuers receive for most debit card purchases. Some observers said that cash use could grow if issuers respond by cutting the perks and promotions offered with their debit cards.
And increased cash use would only benefit ATM manufacturers and operators in the long run, executives agreed.
"We think [the rule proposal] potentially has a direct benefit to us," said Rick Updyke, the president of Cardtronics Inc.'s U.S. business group. "Even beyond that, cash is not going away."
The central bank is seeking to cap debit card interchange fees at up to 12 cents per transaction. That is far below current levels for most purchases. A typical $40 PIN-debit Interlink purchase, for example, now costs the merchant an interchange fee ranging from 30 cents to 45 cents, depending on volume, and the interchange fee on a $40 Visa check card signature-debit transaction ranges from 37.8 cents to 56.8 cents, according to calculations using Visa Inc.'s published rates.
If banks decide debit cards will no longer be profitable, they could forgo debit cards altogether and just issue ATM cards for cash access — a move that would ultimately give cash more power, analyst Ben Jackson of Mercator Advisory Group said in September.
Many still see cash as a good alternative in a struggling economy, Updyke said. "The economic situation has greatly reduced the line of credit in this country," he said.
A recent study by Javelin Strategy and Research found that 26% of consumers are paying for purchases with cash compared with 28% who use credit cards and 37% paying with debit cards.
"We're not worried about a cash decline in the U.S.," said David Hadesty, vice president of strategic alliances and product management at the German ATM maker Wincor Nixdorf AG.
Some observers, however, disagreed that cash use would grow because of changes in debit card interchange policy.
"There are going to be lots of things that are positive and negative about the impact of financial regulation, but the bottom line is that people are not moving back to cash," Todd Ablowitz, the president of Double Diamond Group, a Centennial, Colo., consulting firm, said in September.
He cited consumers' stated payment preferences, especially among the younger generations. "Ask a [consumer] under the age of 25 if they are carrying cash on them," he said.
Under the Dodd-Frank Act, merchants may discount prices if a consumer uses cash to pay.
However, Philip Philliou, a payments industry consultant and managing director at Philliou Selwanes Partners LLC in New York, said merchants would not be so quick to offer cash discounts because they still understand the convenience electronic payments creates for themselves and consumers.
