Retailers are likely to see lower Interchange processing expenses this holiday season due to fewer consumers using credit cards and rewards cards. According to a WSJ article, Fewer Shoppers Using Credit Cards for Gifts, there has been a drop in the number of shoppers paying with credit cards. Higher interest rates, lower spending limits, canceled accounts, maxed out cards and watered-down rewards programs are all cited as reasons for the decline.
In general consumer spending has shifted from credit to debit during the recession. In the third quarter of 2009, credit transactions for Visa and MasterCard reached $313 billion, an 11.58% decline over the same quarter in 2008, according to TowerGroup. Debit transaction volume for Visa and MasterCard was $303 billion, a 5.21% increase over the third quarter in 2008. PIN debit-card transactions increased by 9% this Black Friday over last year, according to First Data.
With this shift from credit to debit comes lower Interchange costs for retailers. Check cards (signature debit) and PIN debit transactions carry lower Interchange costs than credit and reward card transactions. Good news for retailers who have argued that Interchange expense is too high and have organized to lobby the government for relief. Merchants have also said that they will pass along the savings from lower Interchange to consumers in the form of lower prices. However as the GAO reports, this will be hard to determine.
In the Visa Check / MasterMoney Anittrust Litigation settlement, merchants won the ability to opt out of accepting either credit or debit transactions. Merchants have been reluctant to opt out of higher priced credit acceptance. But now their customers are making debit payment choices more frequently. The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments and 2008 sales of $4.6 trillion. One would think that the fastest way to effect the lower Interchange they seek would not be through government intervention but by encouraging their members to opt out of credit, accepting debit only.