Point-of-sale transactions will likely become less costly, faster and more secure as result of pending debit interchange rate regulation, and future credit card interchange regulation is almost a certainty, Wal-Mart Stores Inc.’s vice president of finance told attendees today at SourceMedia’s ATM, Debit & Prepaid Forum.
In a keynote address at the 18th annual gathering, which drew some 700 attendees in Phoenix, Ariz., Mike Cook, who also serves as assistant treasurer for the nation’s largest retailer, said that the new debit rates, which he expects to be lower, will be a relief for merchants that have seen U.S. debit and credit card interchange rates in recent years soar.
“U.S. (merchants) pay the highest interchange rates in the world,” Cook said, adding that in the U.S. “the average retailer pays in excess of 200 basis points” on each transaction despite having one of the world’s most sophisticated payments systems.
Under new debit-interchange rates the Federal Reserve is expected to levy next year under the Durbin Amendment within the Dodd-Frank Reform and Consumer Protection Act President Obama signed into law July 21 (
Congress will also eventually “act to control credit card interchange fees in much the same way they acted on debit (interchange),” Cook predicted. He noted that regulators in many other markets around the world, including Australia and Europe, have intervened in setting credit card interchange rates, and it has improved payment systems there.
PIN debit transactions, which are less costly than signature debit transactions and provide more security, outnumber all other types of electronic payments at Wal-Mart, Cook said, and their share continues to grow. He expects that trend to continue after the Fed announces new debit interchange rates next year.
Wal-Mart’s share of PIN-debit transactions has increased sharply within the last several years, Cook said, noting that PIN debit volume has risen 17.7% this year compared 2003 levels, while signature debit has risen 3.6% during the same time period. Check volume has declined 17.6% since 2003, while credit transactions have declined 3.3%. (Other forms of payment Cook did not specify rose 2.2% between 2003 and this year.)
“Signature debit is worthless as a form of authentication,” Cook said, because it exposes transactions to fraud through card-skimming and counterfeiting of cards.
Cook says U.S. merchants and issuers could almost “completely eliminate” most card fraud if the nation adopted chip-and-PIN, or EMV, card technology, which provides an extra layer of security by requiring cardholders to enter a PIN to authenticate transactions.
“A move to EMV in the U.S. is inevitable,” Cook said. “If we want to mitigate the possibility of the U.S. being at the center of card fraud, it is time to charge someone in the government with developing a well thought-out multi-participatory plan to move this country toward (adopting) EMV,” he said, declining to specify when that might occur.
Although it is too early to see all the potential effects of new debit interchange rates that have not yet been determined, Cook said he does not see consumers shifting transactions toward credit again, noting that credit card transactions have fallen to “well below 15%” of Wal-Mart’s total transaction volume.
“(It is partly due to) the economy in general, but PIN is definitely preferred (by Wal-Mart customers),” Cook said, noting that he does not expect that to change when new debit interchange rates take effect. “There will be no incentive for people to route transactions to signature instead of PIN,” he said.
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