The Economics of Debit Acquiring

Report Evaluates Real Costs Associated with
Merchant Acceptance of Debit Cards

Boston, MA – – February 8, 2010At the point that the paper-based payment card market began to become the electronic payments industry, point-of-sale payment acquirers had not predicted debit’s current ascendency. Even without the final full-year statistics for 2009, we can say with confidence that growth in debit card transaction numbers and dollar volume has outpaced credit. The trend is sure to continue as cash and check payments at the point-of-sale are increasingly replaced by card transactions, as credit issuers dial down lending to existing accounts, and as credit-conscious consumers reign in borrowing.

Coupled with debit’s growing share of consumer payments has been the rising cost associated with merchants’ acceptance of debit instruments at their points-of-sale. Consumers’ preference for using their PINs has also been growing faster than signature debit, deepening the impact on acquirers and merchants.

Mercator Advisory Group’s The Economics of Debit Acquiring report provides an overview of the costs associated with enabling merchants to accept debit cards for payment. This report evaluates EFT network pricing trends and provides an in-depth analysis on the implications these trends will have on acquirers. This report also offers the U.S. market share for the top companies in payment acquiring, discusses ways in which share can be measured, and analyzes PIN debit’s role in skewing market share depending on which metric is used.

“Acquirers must eke out some profit margin from the amount they earn on interchange mark-ups – an already daunting task given the current level of merchant price sensitivity, but one that is all the more challenging on PIN debit because of the industry’s propensity to rely on a flat fee for PIN debit processing,” David Fish, Senior Analyst in Mercator Advisory Group’s Debit Advisory Service and author of the report comments. “Since acquirers’ core business is still heavily credit-dependent, shifts in business models will need to catch up with consumer behavior. Acquirers should essentially be attacking debit as a potential profit center as the market and regulatory environments surrounding bankcard payments encounter significant and potentially strengthening headwinds.”

Highlights of The Economics of Debit Acquiring report include:

Merchant acquirers have historically priced PIN debit with a flat fee to the merchant. The old paradigm needs to shift as EFT network pricing continues to rise and as PIN debit’s average ticket also increases.

Signature debit pricing has held steady, but with Visa controlling about four-fifths of the market, competition from other networks for issuers likely means more rising costs.

Enterprising acquirers looking to exploit the shifting consumer payments mix should be casting a fresh eye on selling PIN debit acceptance services.

The July 2010 deadline for PCI PED compliance has created some opportunity for merchant acquirers – optimizing the opportunity requires a new, more flexible attitude toward PIN debit.

Acquirers’ market share can vary greatly based on the dollar volume and number of PIN debit transactions they acquire.

One of 10 exhibits in this report:

This report is 18 pages long and has 10 exhibits.

Companies mentioned in this report include: American Express; Banc of America Merchant Services; Chase Paymentech; Citi Merchant Services; Discover; Elavon; Fifth Third; First Data; First National Merchant Solutions; FIS; Fiserv; Global Payments Inc.; Heartland Payment Systems; MasterCard; Metavante; RBS WorldPay; SunTrust Merchant Services; Visa; Wells Fargo Merchant Services.

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