By Ray Birch
ST. PETERSBURG, Fla.—The pandemic has created a new payments battleground—the fight for greater share of PINless debit transactions driven by the boom in ecommerce sales.
“This new battleground is being created by COVID-19,” said Brian Scott, SVP and chief growth officer at PSCU. “Networks are fighting to grab this greater use of debit, which is also driving greater use of PINless debit.”
Scott termed the current environment an “interesting time” in which everyone is vying for payments transactions that are evolving with changed consumer behavior during the pandemic.
“Everybody's trying to get their slice of the pie since everything has been thrown up in the air,” said Scott.
As CUToday.info has extensively reported, during this health-crisis-driven recession consumers are putting down their credit cards in favor of using debit to better manage their finances. Moreover, as consumers venture away from home less frequently, they are buying more online. The result has been a well-documented spike in ecommerce sales. PINless debit use for online purposes has grown markedly as well.
“Debit activity is way up, and PINless debit transactions are becoming much more valuable,” said Scott. “We have seen overall debit volume go way up as consumers pull back on their use of credit during the pandemic. Everyone wants a bigger piece of the card not present, PINless debit transactions that are rising.”
Right in the Middle
However, squarely in the middle of this battle are efforts to limit merchant choice to least-cost route PINless debit over lower-cost PIN rails.
U.S. Sen. Richard Durbin wants the Federal Reserve to look into what he says are efforts by debit card issuers, “aided by the dominant card networks,” to prevent PIN-debit networks from getting a bigger share of booming card-not-present payment volume.
The well-known amendment named for the senator requires issuers to make at least two unaffiliated debit networks available to merchants for transaction routing. The Fed’s Regulation II, which took effect in 2011, implements the amendment’s provisions. Durbin’s letter says “intervention may become necessary again” because of “what appears to be the anticompetitive practice of major debit issuers refusing to enable PINless debit functionality on their cards.”
Rethinking Marketing
Brian Scott
Scott said credit unions need to be aware of what is taking place in the debit space—both the expansion of debit and PINless debit usage, and also the efforts of the major issuers and payments networks to block least-cost routing by merchants. Scott also believes it is time many CU issuers rethink their debit card marketing.
“With his new battleground, with this spike in debit usage, credit unions need to take note of this,” said Scott. “I think the number one thing is to recognize that activity is now migrating to debit.”
While the migration may be temporary, as the use of credit is expected to pick back up once the recession is over, Scott said there is simply too much at stake right now to ignore what is going on.
“I think in a year, when we are hopefully post-COVID, I still think debit will be strong,” said Scott. “I don’t think consumers just go right back to heavy use of credit again. So, credit unions need to recognize what is happening now.”
A ‘Flawed Strategy’
Scott said many credit unions have been reticent to focus a lot of marketing effort and dollars around debit.
“Put more things around debit—like instant issuance and loyalty programs,” Scott explained. “I've seen a lot of credit unions pull back on these things with debit because they are saying, ‘I don't make much money on debit,’ However, in my opinion, that's a flawed strategy. And now, more than ever—with choices like CashApp trying to win your members share of wallet—you want to be your members’ preferred payment choice. If they're preferring debit right now, you want to be there for them with better debit value.”
Scott said if consumers are using the credit union’s debit card now they will be more likely to pick up the CU’s credit card when they begin using credit heavily again.
“You want to make this an easy migration for them,” he said. “You want to have your members put both your debit and credit card in their mobile wallet. So when they decide to switch you are top of mind.”