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Update Newsletter: Spring 2007

Supply- and Demand-Side Developments Influencing the Growth of the Debit Market

On August 3, 2006, the Center hosted a workshop on developments in debit card payments led by Ronald Congemi, senior vice president of strategic industry relations for First Data Corporation. External Link Given Congemi’s long history working in ATM and PIN debit businesses, his presentation focused on the trends in PIN debit. Julia Cheney summarized Congemi’s talk and the resulting group discussion in a paper entitled “Supply- and Demand-Side Developments Influencing Growth in the Debit Market.” PDF Congemi’s remarks drew on two recent surveys sponsored by First Data Corporation that examine supply- and demand-side dynamics in debit payments.

Supply Side

Congemi referenced a study by First Annapolis Consulting that estimated that locations that accept PIN debits at the point of sale have grown 80 percent since 2000. While this shows significant growth in locations that accept PIN debit, it is still only 64 percent of the locations that accept signature debits, but the gap is narrowing. Congemi noted that recently PIN debit fees have been increasing, but they are still lower than the costs of signature debits. As these fees begin to converge, traditional incentives for merchants to favor PIN debit and for issuers to favor signature debit may lessen. In the end, Congemi believed that while acceptance fees may move toward the center, complete convergence will not occur as long as competitive debit networks remain; therefore, preferences among merchants and card issuers for PIN vs. signature debit will continue to exist.

Congemi also highlighted data from the Star/First Data POS Debit Issuer Cost study conducted on their behalf by First Annapolis Consulting. This study examined issuer costs involved in supporting PIN and signature debit card programs. This research showed that while signature debit card programs generally provide more revenue for banks, they also cost more to support. Congemi emphasized a key finding from Star/First Data’s research: PIN debit programs are, on average, 47 percent less costly than similar-size signature debit programs. Congemi argued that as financial institutions focus more on payments-driven revenue, payments-driven costs must also garner more attention.

Demand Side

On the demand side, Congemi cited data from his company’s 2005/2006 Consumer Payments Usage Survey. External Link As the rapid and dramatic increase in both signature and PIN debit suggests, many consumers find these products useful for conducting daily transactions. According to the survey results, the primary drivers of consumer payment choice are convenience, cost, and security.

Congemi noted that the increased use of “cash back” at the POS as an alternative to more costly ATM transactions is another significant factor influencing consumer adoption of PIN debit. PIN-based cashback transactions began gaining popularity at about the same time that many banks began instituting “foreign transaction” surcharge fees for ATM withdrawals by account holders from other banks. Congemi noted that while cost factors encourage consumers to get cash back at the point of sale, the study also found that many consumers also place a high value on the convenience associated with the cash-back feature.

Studies conducted by the Federal Reserve and others have documented for some time that consumers are increasingly finding debit cards a convenient alternative to checks. More recently, Congemi explained, debit has also been displacing cash transactions, especially as traditional cash-only merchants begin deploying electronic terminals at their sales locations.

Despite these positive developments, Congemi warned that, left unchecked, data breaches and identity theft, two growing risks in the payments arena, could undermine consumer confidence in debit and other electronic payments. Should this occur and consumers begin to abandon electronic payment alternatives, the direct and indirect costs to the industry and society as a whole could be substantial. He urged that all in the industry take an active role in managing these risks and educating consumers.


Congemi’s presentation emphasized that the combination of supply- and demand-side developments has propelled the growth of PIN debit in recent years. Acknowledging his obvious affinity for PIN debit, he closed by noting that issuers should not necessarily view signature and PIN debit in “either/or” terms: A critical finding of the study was that debit cardholders who use both PIN and signature debit make more transactions than those who use only one of the two formats. The very strong implication is that banks that promote both forms of debit will enjoy greater transaction volumes and customer loyalty.