According to MasterCard’s presentation at the Goldman Sachs US Financial Services Conference on Dec 8, retail sales are showing positive signs – relative to payment cards.  They cited November as the third consecutive month of growth since July, 2008.  They attributed the growth to changes in consumer attitudes.  Consumers are focusing more on quality and value, have more control over finances and have become more frugal, which is a shift back to traditional roots of credit card use.  When the first payment card, Diners Club, was introduced in 1950, members had to pay off their balances each month.  There was no such thing as revolving credit.  Today, consumers are still using credit, but more responsibly. Continue reading "What Card Payment Usage is Telling Us"

In previous posts I have talked about Visa and MasterCard turning to Debit and prepaid cards to re-coop money lost on defaulted credit cards. These types of cards used to be the cheapest form of electronic payment a merchant could accept – that seems to be changing these days.

It is estimated that PIN-based debit transaction Interchange costs have gone up nearly 85% in the last year alone. The rise could be attributed to a large consolidation between debit networks. Whenever there is consolidation, there is typically less competition and the result is higher PIN-based debit costs to processors and higher interim costs to merchants. Interlink’s current fee is nearly $0.76 per transaction and Pulse’s is over $0.64. Many merchants have become accustomed to paying flat fees for PIN-based debit transactions but in the coming years that will be a thing of the past.

Continue reading "Visa and MasterCard Make Their Money on PIN-based Debit Transactions"

It has been projected that this holiday shopping season will hit retailers hard. With the economy on tumbling blocks and the unemployment rate on the rise, many are saving their pennies for a rainy day. Historically, Black Friday is the biggest shopping day of the year, followed by Cyber Monday for all of us online shoppers.

Retailers had to resort to drastic sales and discounts to draw shoppers in. Although the sales receipts and purchases were reported to be high, the profits were low. ComScore, an Internet research company, reported Sunday that online spending was up a modest 2 percent for the combined Thanksgiving Day and Friday, compared with the same period last year. Karen MacDonald, a spokeswoman at Taubman Centers Inc., which operates 24 malls in 11 states, said that based on a sampling of malls, Friday’s business was anywhere from unchanged to up mid-single digits. Saturday’s sales were unchanged to down slightly.

Large retailers such as Wal-Mart estimate that November sales fell .01 percent at its US stores. Wal-Mart says this is the company’s first monthly same-store sales decline since April 1996. Although the stores had big crowds, people were not spending.

Overall spending by large retailers, such as Best Buy and Macy’s, was reported to be down by 50% over last year and is considered to be the largest drop in over a decade. Ultimately, the credit card companies will be taking the biggest hit. Many shoppers are resorting to paying with cash, check or debit card. Both Visa and MasterCard rely heavily on credit card sales vs. debit card sales. There is no telling what percentage of the credit card sales will simply become debit card sales or just cash.

Banks are becoming more leery to issuing credit cards. The alternative is to issue debit cards so that there are no default payments. Although this is good in the short term, they also eliminate a huge stream of income by not being able to collect interest.

Many people are trying to avoid using credit cards by turning to debit cards instead.  Some banks have turned to prepaid programs tapping into the unbanked markets – the millions of people who don’t have a bank or credit card account – and some employers are turning to employee payroll debit cards. Employees have their paychecks deposited onto a card which they use for all their purchases to try to avoid debt. According to The Nilson Report, debit purchases are expected to climb 13% in 2008, to $1.2 trillion. According to Visa, debit spending could surpass credit this year.

Continue reading "Are Debit Cards Outweighing Credit Cards?"