BIRMINGHAM, Ala.—The recent move by big box retailers to PIN-less debit, may not only take money out of issuers’ pockets, it may do the same to consumers.
Moreover, the cost-cutting move by retailers like Costco, Walmart, Kroger and others could lower the rates of high-yield rewards checking programs, and even lead to banks and credit unions charging consumers fees for PIN-less transactions, according to analysis by DepositAccounts.com.
Some large merchants recently moved to route all transactions below $50, including signature debit, through PIN-less debit. Under that routing merchants process the transaction as PIN, but don’t require the customer to enter their personal identification number. The purchase is routed to the issuing bank through a debit network instead of a Visa or MasterCard network. That results in lower interchange fees that retailers pay to banks and credit unions, compared with higher-priced signature debit transactions.
Sources have indicated that the move by retailers resulted from last year’s Supreme Court decision to uphold the Federal Reserve’s interpretation of the Durbin rules. Not winning in court, retailers have now taken action into their own hands.
DepositAccounts.com pointed out that the move will make it difficult for FIs to keep checking accounts free, cover costs of ATM fees, and pay high yields on reward checking accounts.
“This long zero interest rate environment has been very difficult on reward checking accounts. Rates and balance caps have gone down over the last several years. I’m afraid this is yet another headwind for reward checking,” the website reported. “When I asked my credit union contact if they are planning to make any changes to their reward checking account due to this loss of interchange revenue, he said that if most retailers adopt this, he was sure it would lead to a drop in the interest rate.”
Fewer signature transactions could also mean consumers won’t qualify for their monthly signature transaction minimum to receive the higher interest rate—and consumers may not even be aware they are short since the retailer, at the point of sale, does not inform the consumer that the transaction is PIN.
Another possible ramification is that banks and CUs may hit consumers with a fee when they make a debit card purchase that goes through as a PIN-less transaction, DepositAccounts.com reported.
The move to PIN-less debit may bode well for Internet savings and checking accounts, whose greater efficiencies allow for higher rates—and those higher rates will be noticed more by consumers as high-yield checking rates fall, sources have stated.