Although spending on Visa credit cards increased in April and May from a year ago, overall volume processed on U.S. Visa cards was down 3 percent in April and remained stagnant in May as spending on Visa debit cards declined by double digits.
In response to the Durbin Amendment financial institutions have cut debit reward programs and incentives while instituting new or higher checking account and debit card fees. Reacting to fewer incentives and the higher costs of having a checking account or using debit a card, U.S. consumers have defected to different payment methods. Purchase volume on U.S. Visa debit cards was down 12 percent in April from the previous year while the year-over-year decline in debit volume was 8 percent for May. Meanwhile, Visa’s U.S. credit card payment volume increased in April and May by 8 and 10 percent, respectively, but this wasn’t enough to offset the decline in purchase volume from decreased Visa debit spending. Visa’s total U.S. payment volume was down 3 percent from the prior year in April and stayed flat in May.
It was unanimously predicted that consumers would reduce spending on debit cards as regulations reshaped the market, but we are still sorting out what payment methods these consumers would turn to next. While former debit card users likely contributed to the increase in Visa credit card spending there is still a substantial volume of payments that were made through a different method. Although financial institutions are pushing prepaid, or General-Purpose-Reloadable, cards to the underbanked, the Consumer Financial Protection Bureau is preparing standards and regulations that will affect this market as well. Now and over the coming months, consumers will continue to decide how they prefer to make payments as costs and incentives change, and this may provide more opportunity for alternative payment providers, such as PayPal, Dwolla and others, to position themselves against the credit and debit card networks that dominate retail transactions today.
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