Kansas City Fed Chief promotes ACH Debit

An article on Digital Transaction News shows that the concept of Alternative to Card Association Debit is needed. With the recent changes in the Credit Card laws by President Obama and Congress. Those who in the past benefited from paying their balances on Time. Are now going to lose out to those who are not. This may drive many back to Checks, and Cash. Certainly with Rewards programs being reduced, and the perks being eliminated. Change is in the wind. It is time to evaluate how an alternative system might benefit, Merchants and Consumers.

Kansas City Fed Chief Espouses ACH for Debit Card Processing

(May 27, 2009) The Federal Reserve Banks should adapt the automated clearing house network to compete directly with private-sector networks for debit card processing, the head of the Federal Reserve Bank of Kansas City said this week. “The Federal Reserve could enhance competition in payment card markets by positioning ACH services as an alternative to debit card payment networks,” said Thomas R. Hoenig, president of the Kansas City Fed, in remarks delivered on Monday at a retail-banking conference held by the European Central Bank in Frankfurt, Germany.

Hoenig said he isn’t proposing the Fed issue cards or run its own card network. But he said the U.S. national banking regulator could “add enhancements” to the ACH that would allow the nearly ubiquitous network, which reaches virtually every bank in the U.S., “to become an alternative to running transactions over card networks.” He pointed to decoupled debit cards, in which banks issue debit cards that link to deposits held at other banks, as an example of the sort of adaptation he favors.

For the full article click link. Digital Transaction News is a great source for information on the payments Industry.

http://www.digitaltransactions.net/newsstory.cfm?newsid=2222

Debit Cards

Debit Cards Propel What Growth There Is for MasterCard And Visa

(May 1, 2009) Despite the economic downturn and softening volumes, MasterCard Inc. put in a “solid” first quarter, Robert Selander, MasterCard president and chief executive, said early Friday.

“Our volumes have been impacted by significant headwinds, such as slower cross-border travel, lower gas prices, and an appreciating dollar,” Selander said at an analysts’ conference call. “But our business model remains resilient as we continue to benefit from the secular shift from cash and check to electronic payments.”

MasterCard’s total U.S. debit and credit card purchase volume for the first quarter totaled $192 billion, a 6.8% drop from $206 billion in 2008’s first quarter. U.S. purchase transactions rose 2.5% to 3.33 billion from 3.25 billion a year earlier.

Debit helped limit losses in dollar volume. U.S. debit volume rose 5.3% to $79 billion from $75 billion in 2008. Debit purchase transactions were up 10.8% to 1.95 billion from 1.76 billion in last year’s first quarter.

In contrast, the 1.39 billion U.S. credit card purchase transactions represented a 6.7% drop from 1.49 billion last year. Credit card purchase volume also dropped to $113 billion in the first quarter, down 13.7% from $131 billion a year earlier.

MasterCard’s U.S. credit card base shrank 14% to 239 million from 278 million in 2008’s first quarter. The U.S. debit card base increased 9.5% to 127 million from 116 million a year earlier.

Net income for the first quarter dropped 17.8% to $367.2 million from $446.9 million, due primarily to the effect of volatile currency markets, Selander says. The economic downturn, including rising unemployment and declining retail and travel sales, also contributed to the lower earnings, he said. Meanwhile, Visa Inc. reported earlier this week that U.S. debit dollar payment volume exceeded that of credit for the three months ended Dec. 31. Previously, though U.S. debit transactions have surpassed that of credit for several years, total purchase volume on credit remained higher on credit than debit because of credit’s higher tickets.

However, in recent months, credit card transactions have been falling, as has the size of the average sale, according to Visa. Visa’s total $409 billion U.S. debit and credit card purchase volume represented a 1.1% drop from year-ago levels.

Credit card purchase volume dropped 6.9% to $203 billion from $218 billion a year earlier. Visa’s U.S. credit card base dropped 8.5% to 334 million from 365 million.

In contrast, dollar volume on U.S. debit cards increased 5.6% to $206 billion for the three months ended Dec. 31, from $195 billion a year earlier. Debit transaction volume rose 9.7% to 5.44 billion from 4.96 billion a year earlier. Visa’s U.S. debit card base rose 12.9% to 333 million cards from 295 million in 2007.

Net income for the Visa’s second fiscal quarter ended March 31 totaled $536 million, up 71% from a pro forma $314 million a year earlier, Visa said.

What is Decoupled Debit?

The Term Decoupled Debit emerged in 2008. Prior to that Non Card Association debit was referred to by several different names. It was called Merchant Centric Debit, ACH Debit, Non EFT Networks Debit. R. Scott Hattfield founder of Debitmann promoted the concept of a non Visa and Mastercard Debit product. That used ACH to process the funds and linked directly to a Consumer's bank account. Because the depository Financial Institution where the Consumer's Checking account resides, does not realize revenue from Debit transaction fees. It is referred to as a Decoupled or "Unhooking" of the Financial Institution and the Debit processing relationship.

Alternative payments using ACH are hot right now. And their future seems bright. But they will require Consumers support and Merchants support.

Merchant Payments Coalition

The Merchant Payments Coalition is an Association composed of Trade Associations and Merchants. Their purpose is to attempt to Lobby Congress to change the Interchange rate structure or abolish the existing system. The Issues on their website at www.unfaircreditcardfees.com articulates the issues impacting US Merchants. Despite advances in Fraud detection, Risk analysis and Predictive Risk Scoring technologies. Card Association fees continue to take an increasing percentage of the revenues generated by Merchants.

I highly recommend reading their site to understand the issues facing Merchants. The National Association of Convenience Stores is a part of this group. In 2007 I recognized as others that the current Free Market mechanisms are in fact not operating. This is due to the fact that Visa and MasterCard control 80% of the US Payments market. Their success has allowed them to set the prices to what the Market will bear.

Competition is needed. ACH offers an alternative to their services. Risk Management, Loyalty incentives, Predictive Risk scoring offers a truly viable alternative. Shell Oil USA with their Shell Saver Card, has rolled out a service in January of 2009. Blackhawk Networks a subsidiary of Safeway Corporation has a SCheck product, First Data Corporation has Connect pay a Loyalty product with ACH, Tempo Payments offers a Decoupled product, as does National Paymentcard Association. The Software and Hardware company offering Loyal Debit is in the Decoupled Debit space.

Merchants should evaluate the opportunity and take a chance on changing the paradigm in their favor. This blog is about the emerging Decoupled Debit product. And how Merchants see their part in the payments Industry. I welcome your comments.