LAS VEGAS — It may be too early to tally the numbers from new, lower debit-interchange rates that took effect Oct. 1, but three of the nation's largest merchants already are sending signals that the new debit-pricing structure is unlikely to boost their bottom lines.
Executives from Wal-Mart Stores Inc., 7-Eleven Inc. and McDonald's Corp. who participated in a panel discussion on debit card trends here at the ATM, Debit & Prepaid Forum Nov. 4 told attendees legislation to cut debit interchange did not go far enough.
PaymentsSource publisher SourceMedia Inc. sponsors the annual conference.
"It's a good first start," Michael Cook, Wal-Mart vice president and treasurer, said of the Federal Reserve Board's final rule capping interchange at 21 cents per transaction plus a few cents to cover fraud costs and for meeting certain Fed standards. Previously debit interchange averaged 44 cents per transaction.
Cook said he also is eager to support any "future regulatory reform" designed to reduce credit card interchange.
Even at this early stage, 7-Eleven does not anticipate seeing any real benefit from the implementation of the new debit-interchange rates, Richard Peck, 7-Eleven senior director, corporate finance, told the group.
Because the average ticket size on most convenience-store purchases is relatively low, "we don't expect to see any benefit" from the new debit rates, Peck said. In fact, "it may even be a negative," he added, alluding to the fact that card networks so far are enforcing the new rates even on the smallest purchases, which can cut steeply into profits on a pack of gum or a cup of coffee (
The Dallas-based convenience-store operator may benefit from lower debit interchange on higher-ticket gasoline purchases, but 7-Eleven sells fuel at only 40% of its national locations, and most of those purchases tend to be on credit cards, Peck said.
But Peck holds out some hope that when new debit card routing rules requiring payment cards to carry at least two card-network brands go into effect April 1, network competition may drive debit rates lower.
"It's very early; the routing benefits may be there ... when (the rules) truly go into effect," Peck said.
McDonald's also expects to see little immediate effect from lower debit rates because of the overall low average ticket size of store purchases, Robert Donovan, the fast-food company's corporate vice president and U.S. assistant treasurer, told attendees.
One positive result of new debit regulations has been the rise in consumer awareness of credit and debit card interchange, which may help merchants in their push to cut interchange further, Donovan suggested. Thanks to the debate surrounding debit-rate regulations, "the average consumer is now far more aware of the cost associated with reward programs," he said.
Whether many merchants will succeed in steering consumers toward using cash instead of debit or credit cards remains to be seen, panelists agreed.
7-Eleven is not offering customers discounts for cash or debit, but some competitors are doing so, Peck said, saying he believes other operators will offer discounts for debit to steer customers away from credit card use.
Debit is the No. 1 payment choice at McDonald's stores, partly because the fast-food chain has been pushing card payments in recent years to speed up service, Donovan said. But a large percentage of customers still pay with cash, which poses no obstacles to its operations.
Wal-Mart's Cook suggested a broad shift by consumers to paying with cash instead of debit or credit cards would not be as big a problem as some believe.
"It seems strange merchants are always told our costs of cash handling are higher than we think it is," Cook said. "It's frustrating to hear people say we're not considering our total cost of cash. Let me deal with that."
Cook expressed concern about industry reports that issuers are increasing credit card direct mail solicitations, which could encourage cardholders to use credit cards, which have higher interchange fees, instead of debit cards.
"We're headed right back to where we were" prior to 2009, when banks were "tempting consumers to make poor decisions" and encouraged them to "get drunk on credit," he said.
Moreover, Cook is skeptical the emergence of mobile payments, including Near Field Communication-driven technology, will enhance Wal-Mart's sales or operations.
Cook said he can use his phone now to shop at Wal-Mart online, suggesting that upgrading payment terminals to NFC technology for two-way communication may not be as revolutionary as some propose. The efforts required to implement NFC may exceed the benefits it offers, he suggested.
Cook said he also wondered whether some other technology might leapfrog over NFC. "It's a shiny object people want to chase after," he said. "It may happen, (but) this is one I question."
Cook was equally skeptical about the advantages mobile-wallet initiatives offer. Merchants already are harnessing new channels such as social media to market to consumers online and through mobile devices, he noted.
"Do we believe that when the consumer gets to the (store) checkout, the consumer is going to close that app and open Google (Wallet) or another app?" he asked?
McDonald's Donovan echoed that skepticism, noting the Isis mobile-wallet initiative so far appears to be "very oriented on banking" and fails to address merchants' core needs.
"To use a movie phrase, Isis assumes that if you build it they will come," Donovan said, adding that while that logic might work in baseball, it is unlikely to motivate merchants.
"Don't expect merchants to spend a lot" on upgrading payment terminals to conform to banks' mobile-wallet schemes "unless there's some compelling price," he warned.
