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Debit transactions undaunted by economic downturn - Spend slowed in December, but held steady for 2009

Published:Wednesday | January 27, 2010 | 12:00 AM

Sabrina Gordon, Business Reporter

There was a damper on spending via debit cards during the high shopping season in December, although total spend for the year came out almost spot on projections, data from the multilink banking system is showing.

The multilink network processes card transactions on behalf of Jamaica's top banks, building societies and credit unions.

"The peak withdrawal day for the season was December 24, when $530.46 million was withdrawn in 99,483 transactions," Edmundo Jenez, general manager of JETS, the electronic funds transfer company.

The numbers captured by the multilink network do not, however, cover all transactions, only those between institutions. It would register the use of say, an NCB customer card transaction on a Scotiabank network, but would not capture activity of that same card on the NCB network, or what Jenez calls "proprietory transactions".

The multilink network accounts for about 25 per cent of all debit card activity. Still, seasonal changes in transactions processed through the network are used as proxy for measuring cash transactions and shifts in retail activity.

Automated banking machine (ABM) withdrawals and point-of-sale (POS) spending in December bucked the trend of the first ten months of 2009, with up to seven per cent less spent against trends for the total in December, and five per cent less than expected on peak days.

Before December, the highest level of withdrawals was $488.03 million on September 25.

Despite a slower-than-expected December, the level of activity for the year was on target, the multilink spokesman said.

"We had expected $10.496 million ABM and $6.729 million POS withdrawals for a total $17.225 million," said Jenez.

Actual figures

The actual figures came in at $10.26 million for ABM transactions, a decrease of 2.2 per cent over 2008, and $7.1 million or 5.6 per cent more for POS, with the total of $17.37 million in debit card transactions less than a per cent above projections.

The JETS representative surmised that a looming tax hike at the time could have contributed to a lower than expected December card spend.

The annual $21.8 billion tax package, which went into effect January 1, added a point to General Consumption Tax - now at 17.5 per cent - and widened the tax net to include more foods as well as a new charge on the pay of tourism workers' gratuity pay.

The central bank, in a December report on currency in circulation also alluded to the tax effect, said that given the taxation expectation and the impact of the tax announcement on consumer spending, the annual currency growth at the end of December could come in below the initial 8.5 per cent projection.

JETS is forecasting that electronic spend this year will mirror that of 2009, with a five per cent bounce expected in the latter part of the year.

Among the trends reflected by the available e-commerce data is that average transactions per card last year remained in line with the previous year, at around 5.6 transactions per card.

Average POS spend and ABM transactions also remained on even keel year-on-year, at $4,827 per transaction for 2009 compared with $4,656 for 2008.

"The economic conditions seemed to have little effect on the usage rate or frequency of debit transactions, largely due to the fact that most of these transactions occur at the level of living expenses such as groceries, pharmacies, gas stations, and clothing stores or the drawing of cash for similar out of pocket expenses," said Jenez.

User fee

Electronic transactions attract a user fee with NCB charging account holders $41 per multilink withdrawal and $18.50 when using the bank's machines.

The POS charge for NCB clients is $14 and $12 for using multilink and the bank's payment machines, respectively.

Scotiabank charges a $30.30 fee for withdrawal at its own machine and $45.45 if the multilink network is used, with no fee attached to points of sale transactions.

Withdrawals at ABMs account for about 60 per cent of debit card use, although the JETS official pointed out that POS transactions are growing at a faster clip of five per cent per year.

Debit card subscriptions are also on the rise, pushed by banks who have been promoting electronic banking over inhouse transactions to cut back on the cost of delivering banking services.

And, the number of institution-owned ABM units in the multilink network is growing. The figure stood at 533 at yearend with 32 added in 2009, 35 in 2008 and 21 in 2007.

The number of institution-operated POS terminals have also increased to 18,561 at the end of last year - an average growth of about 2,000 annually for the past three years, Jenez pointed out.