[Dave Birch] One impact of the credit crunch, or whatever you want to call it, is that consumers are shifting their spending from credit cards to debit cards. Or, more accurately, consumers are shifting their spending from credit cards to debit cards even more quickly than they were before. This is hardly news, as it has been recognised for some time that debit volumes are growing substantially faster than debit transactions.

debit purchases are expected to climb 13% in 2008, to $1.2 trillion, according to The Nilson Report, an industry newsletter—compared with a 3% rise, to $1.9 trillion, for credit-card transactions. At Visa (V), the No. 1 card company, debit spending could surpass credit this year.

[From The Steady Ascent of the Debit Card – BusinessWeek]

Debit is clearly a product that consumers like. The debit space is not only attracting issuers and consumers, but others as well, with innovative products extending the reach. An example that caught my eye last year, illustrating an area where there is considerable growth potential for 2009, was the use of the debit infrastructure for welfare payments.

Under the five-year agreement, unemployment insurance benefits will be available on a MasterCard-branded debit card that can be used to access funds at banks and ATMs, and to pay for goods and services. Through a partnership with Bank of Oklahoma, cardholders will receive special opportunities for fee-free ATM and teller withdrawals.

[From Finextra: ACS provides debit cards for unemployment benefits in Oklahoma]

This kind of scheme shows that it is new applications, as well as new merchants and new customers, that will drive debit (and, I am convinced, pre-paid) in the near future.

The U.S. PIN debit market has been, for some time, looking at an obvious space for expansion: online. If, issuers quite reasonably assume, it is simple and secure for customers to use their PIN debit cards online then they will follow the offline trend to grow volume. There are a number of different approaches that are being experimented with, ranging from tokens of one form or another to non-keypad PIN entry (to protect against snooping).

The Accel/Exchange electronic funds transfer network will launch a pilot for online PIN debit cards. The technology uses a software that presents a graphical PIN pad on the user’s screen. The consumer uses mouse clicks for PIN entry.

[From National ACH: PIN Debit for Online Payment Processing]

Another approach is to dispense with the PIN but find some other way of increasing the security by authentication through a different channel (typically the customer’s own bank site, as in the case of the popular IDEAL scheme used in The Netherlands).

In connection with the pilot, consumers who want to use the SafeDebit option when making purchases online will choose “NYCE SafeDebit” on the merchant’s Web site during the checkout process. The system then seamlessly redirects them to their financial institution’s online banking site, where they log on as usual through that site’s existing security protocols. The SafeDebit system then generates virtual debit card information for one-time use and automatically populates the merchant’s checkout screen with this information, with no additional keystrokes required from the consumer. The consumer’s actual debit card number is never disclosed to the merchant, and a PIN is not required for these transactions.

[From Payments News: NYCE To Pilot SafeDebit with Verient – November 18, 2008]

If online PIN debit is offered to customers as a convenient and safe payment option, what might the impact be? If the offline experience is anything to go by then it would be a big winner (and might open up an opportunity for pre-paid “cards” through the same system) and credit cards (currently down to 52% share of online payments) would be under ever greater pressure than they are already.

As a result, the percentage of online payments conducted via credit cards is to drop to 40 percent in 2013, as compared to 59 percent in 2007 and 55 percent in 2008.

[From Javelin Strategy and Research » Credit cards to hold 52% of the US online retail purchase volume share in 2009]

Remember, when the web began, credit cards had 100% market share.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


  1. Why would a US debit card issuer want to enable PIN debit acceptance of their cards online? Those cards can all be used in “signature debit” mode online already – so there’s no increased cardholder utility. If PIN Debit online involved lower interchange fees, the merchants might like that but the debit card issuer certainly won’t!

  2. 1. The PIN-based transaction is different, because it is equivalent to the cash transaction according to the EFT act (in the US). In particular, issuer and/or processing network can not reverse it as easy as a ‘card not present’ transaction.
    2. Despite what Scott have just said, I’m not quite sure the ISSUERS are the party receiving the major share of interchange. Those are the processing networks (bugs/labels) who receive the lions share of the interchange; so… follow the money and you will know who’s stomping on the brakes…
    3. There are problems with the technological side of things. The PIN according to the spirit and letter of the rules can not be disclosed, which means that it can not be typed in on a keyboard of your computer, it can not be present in the environment of you computer in an UNENCRYPTED form even for a millisecond. This issue can be addressed technologically only if you convince your customers to download a secure software application. Not so many users are willing to do that. But the solution has been implemented already (by my company, On-line Card Technologies, Inc.). Here’s a video of how it works: http://yolto.com/Buy/Help/HowItWorks.aspx
    In the future, the PIN-debit cards will be issued like this, in the form of a secure personalized software application.

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