Durbin or No, First Data Figures Show Debit Continues To Flourish

Worried about getting too far in debt and nearly oblivious to the ongoing debate in the banking and payments industries about the controversial Durbin Amendment, consumers in June continued to display their allegiance to debit cards, according to new figures from First Data Corp. The nation’s leading payment card processor reported that PIN-debit dollar volume jumped 9.5% over year-earlier levels while signature-debit volume increased 6.5%.

U.S. credit card dollar volume grew only 4.8% in June, however, its lowest monthly increase of the year, while check volume declined 7.5%. First Data also said dollar volume on closed-loop prepaid cards fell 4.8% from June 2011’s level. In all, First Data’s U.S. June dollar volume processed grew 6.4% from a year earlier.

The figures come from the processor’s latest monthly SpendTrend report. Atlanta-based First Data does not publicly disclose the actual charge-volume and transaction figures behind the changes.

Before June, year-over-year U.S. credit card charge volume changes ranged from a high of 8.5% in January to a low of 5.7% in March. Credit growth was a strong 8.2% in May. But now, consumers are feeling increasingly cautious about credit and are transferring some credit spending to debit cards, particularly signature debit cards, according to Rikard Bandebo, vice president and economist in First Data’s Global Information & Analytics Solutions unit.

“Shift in usage from credit to debit can be explained by consumer wariness of continued economic sluggishness and hesitance to buy on credit,” Bandebo tells Digital Transactions News by e-mail. “An example of this is previously we were seeing exceptional growth in high-end retailers and luxury services where credit cards are predominant, now growth in these retailers and services has slowed somewhat.” He adds that, “consumers were hesitant to buy on credit in June due to economic anxiety on jobs, limited income growth, etc.”

And for grocery and purchases traditionally dominated by cash and checks, consumers increasingly are favoring PIN debit over the signature variety. Some big debit card issuers cut back on debit card rewards, most often found on signature cards, and marketing for signature debit cards because Durbin Amendment price controls kicked in last October that cut interchange revenue for issuers with $10 billion or more in assets by about 50%. Growth actually began migrating toward PIN debit a bit earlier.

“Since August of 2011 there has been a very big shift from signature debit to PIN debit. This shift began in retail, but eventually spread” across other categories, says Bandebo. “It is likely being driven by cessation of signature rewards, consumer preference for PIN, and preferable fees for merchants.”

Bandebo downplayed the effects of other Durbin Amendment provisions that took effect in April on the PIN-debit results seen by First Data, which owns the Star electronic funds transfer network. Those provisions gave merchants new transaction-routing freedom and banned debit cards from offering merchants access only to affiliated debit networks. Industry experts say the new rules are driving business to PIN-debit networks such as Star at the expense of Visa Inc.’s industry-leading Interlink network. Besides the dollar-volume increase of nearly 10%, First Data’s PIN-debit transaction volume grew 8.9% in June.

“This data is across all debit networks, so nothing specific can be said about Star,” says Bandebo.

The 6.4% overall growth rate reported by First Data was the lowest increase of the year so far, and it might indicate that other transaction processors too will see slower revenue-generating growth on their systems. A clearer picture may emerge in the coming weeks as processors and Visa and MasterCard Inc. report their latest quarterly results.

Meanwhile, the Federal Reserve this week reported that revolving credit outstandings, the vast majority of which are credit card receivables, grew at a seasonally adjusted annual rate of 11.2% in May, its biggest monthly increase in years. The jump may indicate consumer finances actually are weakening, according to Bandebo.

“This could be a very ominous sign if the revolving credit increases more than spending,” he says. “This happened at the beginning of the Great Recession, and was mistakenly seen as a sign of increased consumer confidence, when in fact many consumers were being forced to increase their balances as they could not afford to cover expenditures. If the revolving [credit] figure continues to grow when they publish June figures, then it would certainly indicate a growing proportion of U.S. consumers having cash-flow difficulties.”