ARLINGTON, Va. – Changes to the rules governing debit card acceptance and doubt about debit card interchange rates have led some banks that issue VISA and MasterCard's debit cards to recently announce delays or even cut backs on their debit marketing and rewards programs. But card industry executives that work with both bank and credit union debit card issuers decry their actions and argue vigorously that now is the time to push forward, not cut back, marketing efforts. "Debit issuers understand that the market has changed after the [anti-trust] settlement," said Dennis Driscoll, vice president for enhancements for Certegy Card Services, the Alpharetta, Ga.-firm that processes credit and debit card transactions for many community banks and credit unions. "But they haven't understood yet just how the market has changed. In this environment they need to market their debit programs more, not less," he said. The card associations' branded debit cards, which rely on a customer's signed receipt to validate its transactions, are one of hottest, if not the hottest, credit union card products right now, according to Robert Hackney, president of Card Services for Credit Unions, the Clearwater, Fla. association of credit unions that process their card transactions with Certegy. "We have seen the number of new accounts growing by 20% per year," Hackney said. "Credit unions and credit union members just love this product." Credit unions and their members love their branded debit cards because they allow more cashless daily transactions. More cashless transactions let credit union members avoid ATM fees and to better manage their resources at the same time it has allowed their institutions to cut costs and earn money on their purchases. But retailers, which have long paid higher fees attached to those signature-validated transactions compared to fees for transactions validated by personal identification numbers, have won the right to not take the signature debit cards and some large retailers can be expected to start pushing customers to use PIN based cards, the executives explained. "I want to be clear. I don't think there are any retailers, not even the big ones like Home Depot and Wal-Mart who are going to stop taking the branded debit card," Driscoll said. With something like 117 million branded debit cards in the market, and more coming all the time, "nobody is going to want to turn their back on that." But Driscoll added that debit card issuers can be sure that retailers, particularly large ones, were going to be enacting "subtle strategies" to convince consumers to use a PIN instead. By "subtle strategies" Driscoll cited an example of a large retailer, such as Home Depot, just assuming at the cash register that a customer would want to use a PIN based card and then, if the customer said they wanted to sign, starting the transaction all over again. "Now, if you are in line at the Home Depot on a Saturday morning and you have a lot of other people in line behind you with two-by-fours and power tools who look frustrated and dangerous, are you going to stick by your desire to sign or are you going to just use a PIN," he asked. In another example, Driscoll cited supermarket chains, which simply ask if the customer wants cash back when they are making a purchase and, when the customer says yes, guarantees that the transaction will use a PIN. Card industry executives say the counter to these strategies will involve education and marketing efforts that emphasize the value of the cardholder's signature, whether in debit or credit card transactions. Too many debit cardholders think that since the funds come out of their checking accounts in both signature and PIN transactions, they are essentially the same, the executives argued. But the signature-based transactions carry fraud protections that PIN-based transactions do not, as well as charge-back guarantees and other protections, they asserted. Financial institutions need to educate their cardholders about those differences, they added. Rewards Programs Dead In the Water? It is in this context of added value, the executives argued, that rewards programs on debit cards will show their worth. "Contrary to some prominent reports in the media," Hackney said, "we are actually seeing a lot of interest in debit reward programs." The difference is that the current uncertainty about interchange income has meant that credit unions have been slow to put programs into place until they can get an idea of what the income stream is going to be, he explained. (See Sidebar) "I think once the interchange situation has settled out, after the first of the year, you will see card issuers starting to tweak and start up their rewards and marketing programs for their debit cards," he added. Driscoll, who admitted his bias in favor of rewards programs, agreed that there is still plenty of interest in the programs for debit cards, but that card issuers want to see the bottom line on how to make their programs work. Driscoll argued that even under the most conservative interchange scenario next year, which he doubted would be in place, a credit union that carefully structured what it offered by way of rewards, how it offered them, how it redeemed them and how it managed the program, could still make a lot of money on its program, particularly in the context of moving members away from using cash or checks to pay for things and increasing the number of debit transactions per month. Both Driscoll and Hackney said the development of rewards programs that take what they called a "household" approach to the card rewards would emphasize this difference. A "household" rewards program would downplay the differences between transactions that use PINs versus those which use signatures by rewarding all card transactions at some level. When rewards programs start granting points for any time a consumer uses a card, whether using a signature or PIN, that will focus consumers' attention on the value of using the card rather than cash, the executives said. The bottom line is that credit unions should not pull away from their debit cards, but market and explains their benefits more fully to their members, Driscoll urged. The changing card market means that credit unions cannot take their debit cards for granted, he said, it doesn't mean they should lose interest in marketing and developing them. [email protected]