100 billion dollars...that’s the volume of spending expected to shift from credit cards to debit cards during the current global Covid-19 pandemic according to Visa. It’s a significant number and it signals a trend in consumer behavior that brings both challenges and opportunities for merchants across the country.
The usage of debit cards for online transactions was trending upward even before the world was turned upside down due to Covid-19. The pandemic has definitely accelerated that trend though causing debit cards to rise to become top of wallet for many consumers this past year. This secular shift in consumer behavior leaves merchants facing growing concerns over card-not-present fraud, false declines, and chargebacks.
In a recent Merchant Risk Council (MRC) webinar titled, “Online Banking Payments as a Tool to Increase Approval Rates and Reduce Fraud”, Ted Iacobuzio, Vice President and Managing Director at Mercator Advisory Group, and Craig McDonald, Chief Business Officer at Trustly, discuss this recent trend, the inherent complexities that come with it, and how Online Banking Payments can help merchants effectively address these challenges.
Here are a few key takeaways from the webinar (P.S. If you’d like to view the full webinar, click here to view the recording. You’ll need to be an MRC member to access):
Nearly half of consumers have decreased credit card usage
According to survey data shared by Ted Iacobuzio, 49 percent of consumers have decreased their credit card usage in the last 12 months. This represents the largest 12-month decline in credit card usage since the Great Recession.
Fear of the future is impacting consumer behavior
The global pandemic has left the world with many unknowns about the coming months and possibly even years. Despite the increase in debit usage, that uncertainty helped drive overall combined purchase volume for debit and credit down 7 percent in Q2 of 2020.
As consumers tighten their purse strings due to that fear they are also proving more apt to spend their own money than to go into additional debt.
Fraud, chargebacks, and card declines are increasingly hurting merchants
The impact that current trends in online fraud, chargebacks, and card declines are having on merchants is significant. Consider these numbers:
- Chargebacks are up 31% since March 2020
- Card-not-present fraud has increased by 80% since 2016
- The approval rate for card-not-present transactions is only 81% according to MasterCard
Combine all of those factors and it is no wonder many merchants are searching for alternative payment solutions to help them address these negative trends and allow consumers to purchase using their bank accounts.
Online Banking Payments lessen fraud risk, streamline approvals, and eliminate chargebacks
Online Banking Payments add a layer of technology on top of the robust and ubiquitous ACH Network, eliminating issues that have led to poor adoption of online ACH transactions in the past. This allows merchants to take advantage of the ACH Network’s low costs while providing them with strong customer authentication, guaranteed payments, and drastically improved customer experience.
Want to learn more about ACH as a customer payment strategy? We wrote a blog post about it here.
In addition to those benefits, Online Banking Payments also offer a streamlined approval process that replaces the usual 5-party model utilized by cards with a 3-party model that decreases false positives and provides merchants a higher approval rate maximizing top-line revenue and consumer satisfaction.
If you are a merchant who is looking to:
- Reduce your payment processing costs,
- Prevent fraud,
- Eliminate your chargebacks, or
- Increase your approval rates