Great questions asked here at Payments News on this topic. While we have some clues, and directional research, the real impacts can only be estimated.

Payments News: More About NACHA's "Credit Push" Initiative – March 24, 2006

if the pilot can prove the service to be an net enabler of additional eCommerce growth. …."The real key", according to Samantha, "is what impact credit push will have on the payments mix"."

There are several things going on at the same time here:

1. introduction of "debit" activity to the ecommerce space
2. introduction of chip cards (debit and credit)
3. introduction of PIN verification for credit cards

1. Introduction of "debit" activity to the ecommerce space

For a variety of reasons, credit cards owned the ecommerce space until now. A key contributing factor was the easy sell, that you can call your credit card company and claim the purchase was not yours, and generally, you will be refunded. This fit well with the doubts and misconceptions about the early days of internet.

Since that time, ecommerce has come a long way, and despite consumers concerns about privacy and security, its well embedded in todays world. So its timely for Banks to offer consumers a choice relative to their purchases, exactly as occurs in bricks and mortar stores.

From other channel experience, we know that channel use profilerates as channels are added. Consumers tend to migrate less than use everything available based on their needs.

2. introduction of chip cards

Chip cards are the proverbial "spanner in the works". This will be disruptive technology, and of that there is little doubt. Banks are deploying chip to counter fraud, primarily at the ATM, but that is just the beginning.

The first obvious disruption will be micropayments and stored value. Smart Banks will soon offer ability to make small payments, say up to $25/50 and this will promote cash displacement. Handy for consumers, and cost reduction for Banks.

But chip also provides security, and as PC's gain chip readers, and they become as pervasive as floppy disk drives used to be, then there is no reason chip cards cannot authorise payment activity online.

3. introduction of PIN verification for credit cards

Back to 1. above, one of the early reasons for credit card adoption for online purchases was the $50 limit on liability for purchases. This provided consumers with the confidence that if the merchant did not come through with the purchase, they had an out. Consumers don't worry about the likes of Amazon delivering any more.
But the introdcution of PIN verification is accompanied with shift of liability to the consumer. This will mean that once the PIN is entered, the consumer is liable for the transaction, because no-one else could have performed the transaction if the PIN has been kept securely. We don't necessarily know how this will play out, because that liability shift was developed before phishing was prevalent. I know the answer will be that chip cards cannot be replicated, but it all gets confused in the consumers mind, and there may be marketing opportunites to manage that liability shift differently.

In any event, the sum of all of the above, brings us to the point that there is little difference between the channels (store and online) and little difference between the cards (credit and debit). Consumers will determine how they spend based on their preceptions of risk, and their financial standing.

The Canadian experience with Interac Online Debit suggests the answer is twofold:

1. customers will use this new function for smaller amounts and continue to use credit cards for larger purchases.
2. a new e-commerce market opportunity is presented for those without credit cards

So the first results in canabilisation of credit card transactions, while the second is a new market. In time this mix may shift once we feel the impact of credit card PIN verification. We don't really know how consumers will react to that, coupled with the liability shift to the consumer which accompanies PIN.

Relevance to Bankwatch:

Banks can never go wrong by offering consumers a choice. But consumers will use everything, so pricing is key.