Blog: No Pressure, Acquirers, but You’re the Key to Debit Growth in Emerging Markets

By Phillip M. Miller, MasterCard Advisors

Emerging markets present quite the dilemma for acquirers that want to stimulate debit card acceptance and usage. The “Catch-22” of the payments scenario in emerging markets goes like this: Consumers believe merchants prefer cash, a perception apparently based on the limited number of debit acceptance locations. For their part, merchants perceive no financial benefit from accepting debit cards, because consumers are not beating down their doors to pay with the cards.  A classic chicken and egg scenario.

In this standoff, the missing factor is the acquirer. Acquirers working in emerging markets can disrupt this impasse by gradually building acceptance and consumer demand. But, first, they need to understand how consumers actually use debit cards and why. Getting that right will reduce the prominence of cash in emerging economies and increase financial inclusion.

Around the world, the number of debit card transactions is close to double the number of credit card transactions. In developed markets, debit transactions are notably higher than credit transactions in what might be called “everyday spend” categories, like groceries and transportation. But it’s in the emerging markets that these categories hold the greatest potential for acceptance expansion.

Widening the acceptance of debit cards is a gradual process, whether in emerging markets or in developed ones. It starts really simply: Get consumers to make one debit card transaction, then make them aware of additional locations that welcome debit cards. Consumer research shows that, contrary to conventional wisdom, debit card payment maturity is driven by the number of merchant categories in which consumers are comfortable using their debit cards, not by the actual number of transactions completed.

So, where do you, as an acquirer, start in an emerging market? We can look at the approach in five steps: 

1.Consumer behavior and attitudes. You must understand consumer behaviors and attitudes. Acquirers can use data analytics to determine spend characteristics by population and identify the most promising categories for acceptance. For example, fuel and do-it-yourself categories look most attractive from the perspective of population size. But, travel and dining out have the most number of transactions. Acquirers that understand these trends and what they mean can then begin to shape market growth and card usage.

2.Consumer POS experience. You need to understand the consumer experience at the POS. This establishes the acquirer’s baseline for expansion opportunities. For instance, fuel may appear to be offering the best merchant growth opportunity, but other categories, like grocery and food stores, may offer bigger opportunities to improve consumer experience and subsequently spend.

3. Key questions: Next, ask your merchant partner these questions:

a. How do they perceive electronic payments?
b. Are they willing to accept cards or still reluctant?
c. Do they understand the value to themselves and to consumers?

 Knowing the answers helps you determine the factors driving card acceptance and usage, and the barriers you need to overcome.

4. Merchant category size. The size of a merchant category is an essential factor in developing your expansion plan in an emerging market. So, this step includes understanding revenue potential for specific categories. Current acceptance and usage levels by category, seen in the context of overall market size, are good proxies for estimating potential volume and transaction penetration—and for establishing sales targets.

5. Acquiring roadmap. Finally, put it all together to develop your acquiring roadmap. Acquirers are always wrestling with the question of how to focus their efforts. Which categories do you determine are prime for acceptance? Which have acceptance transaction history and hold further revenue opportunity from high card use?

Thinking in these five steps will guide you to a successful debit card strategy. For instance, in an emerging market, fuel appears ripe for higher use of debit cards. A big portion of the population—20-30 percent—is expected to use debit for fuel merchants regularly, and there’s favorable merchant experience: 70-80 percent POS penetration. And yet, usage appears to be low. Similarly, grocery may be the category where acquirers focus on driving acceptance—usage is high as reflected by a high number of transactions, but POS penetration appears low (50-60 percent).

The point is, by combining this type of data and analysis with your knowledge of your portfolio and capabilities, you can not only create a targeted list of tactical actions but also create your longer term strategy.

Phillip M. Miller is senior vice president and global head of the Acquiring Knowledge Center at MasterCard Advisors. Phillip can be reached at [email protected]. This article has been summarized and excerpted from a MasterCard Advisors white paper, “How to increase acceptance and use of debit cards in emerging markets,” which can be downloaded for free here.