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Some merchants still reluctant to steer customers toward debit

By Kathleen Winkler

As of Oct. 1, 2011, debit interchange rates are now capped at 21 cents per transaction, plus .05 percent of the transaction amount, drastically lowering the average size of debit card transaction fees that merchants have to pay. Retailers previously paid an average debit interchange of 1.6 percent plus 15 cents on a $78.70 transaction, or about $1.40, according to Javelin Strategy & Research, a global financial research firm. The new limits bring that fee down to approximately 25 cents -- a boon to cash-hungry retailers.


However, a recent survey by Internet Retailer found that only one in six online merchants plan to steer customers away from credit and toward debit cards.


Surveys suggest that many retailers are still unaware of the recent debit card change. Others may be reluctant to influence how consumers pay. Only a relatively few will take steps to lower their costs by encouraging debit card payments over credit cards.

Here are a few more reasons why merchants may be reluctant to influence customers' payment choices. 

Steering consumer preferences
One of the easiest ways to guide customers away from using credit cards may be simple point-of-sale advertising, highlighting the cost savings of using debit and the convenience of using cards versus writing checks. However, some merchants are dubious of whether these types of advertising campaigns would work and fear they could turn some customers away.

Other steering mechanisms include:

A. Imposing credit minimums. Merchants have been allowed to set a minimum on credit card purchases of up to $10 per transaction. Setting minimums stops customers from charging very small amounts, but some merchants fear the practice may oblige customers to make additional purchases to meet the minimum requirements and could discourage sales.

Debit cards are not subject to minimums. However, some merchants are unaware of this and have been imposing minimums on debit as well as credit card purchases for some time. In the post-Durbin market, retailers who are unaware of the change could risk alienating customers as well.

B. Creating incentives. Some merchants have also begun offering discounts and other types of incentives to customers who choose cash or debit over credit. For example, the home funishings store IKEA offers consumers a 1 percent rebate that they can use toward their next purchase if they pay by debit card.

However, some merchants are concerned that their staff may not be able to readily distinguish between debit and credit cards, which tend to look similar, and this could cause confusion and delays at the cash register. In response to these concerns, the Retail Industry Leaders Association (RILA) recently proposed electronic and visual idenitifiers to help clerks readily differentiate between the types of cards. RILA has talked with Visa and MasterCard about introducing these services.

Card companies may steer their own course
Merchants are not the only players in this card game. Banks are unhappy with the prospect of earning lower fees on debit transactions and may also try to steer their customers toward more lucrative credit card transactions. Bank of America, for example, recently announced plans to begin charging consumers when they pay by debit card. If this trend expands, use of debit cards could suffer and consumers could find themselves tugged in different directions. 

See related: Merchant-funded rewards programs: Worth your participation?

Published: September 27, 2011

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