Comments on: Why Debit Cards Aren’t a Product

By: SUP

SUP — Mon, 27 Apr 2009 02:19:09 +0000

to determine whether or not it is a product per se, then one must look into the breadth and depth of its functionalities and also the “tangibilities” of it. It is ultimately a marketing decision to position a debit card as a product or an ancillary to a product. To add more relevant points to construct the P&L case of a debit card, other than fees as its mainstream revenues, you must include the “spread” income. How is this recognized for a bank running a debit card program ? simply by calculating the interest rate differential between the % paid to debit card customers as a float to their balance on the card and the bank’s treasury pool fund before base lending rate. So to argue whether or not this is a product should then correlate the significance this may bring to the bottom line of a bank. Customer retention and the size of the portfolio (of a debit card program) in the bank will correspond the deserving attention of the issue…..

By: Carol Coye Benson

Carol Coye Benson — Fri, 24 Apr 2009 19:56:12 +0000

Thanks to everyone for your comments. I think I was remiss in not calling out the open-loop prepaid cards – what are becoming, increasingly, a “bank on a card”. I certainly agree that these, like a de-coupled debit card, are “real products” in that they are subject to a discrete buying decision. I definitely agree with John and Rueben on that – and on the significance of the use of these products by teen and college age kids, as well as the “unbanked”. I think, in fact, that as the economic woes roll out and these products get better and stronger, we will see a growing population of “unbanked” households – or maybe we should start saying “otherwise banked”.

And Bryan, I certainly agree that agile banks will/should start marketing “debit card accounts”. Come to think of it, when I opened a “teen spending account” at Wells Fargo for my 13 year old (last fall), that’s really what it was – he got a debit card (with no overdraft capabilities!) but no checks.

Carol Benson

By: John MacAllister

John MacAllister — Fri, 24 Apr 2009 19:12:52 +0000

Carol,
A very stimulating post. My take on the subject is that the respective roles of the deposit account and the transaction card (be it signature debit, PIN debit, or plain old ATM card) are changing. To your point, the checking account has always been the product with a capital “P” while the card serves as an access channel or service – a product with a lower case “p.” Yet, as Ruben points out above, the unbanked (and more important in my mind, Gen Y) consumers are now viewing the transaction card as the “P”roduct while the depository account merely enables use of the card. Sure, the money is still in “an account” within the banking system somewhere (Iowa or South Dakota in the main) but the brand/product buying decision isn’t about Chase, BofA, or even Visa or MasterCard; it’s about Green Dot, NetSpend, or Rush, thereby breaking the traditional linkage between the deposit relationship and a banking institution. Now, if any my hypothesis is anywhere near correct, your initial fascination with Bank of America’s change in business line reporting becomes even more accurate and well-placed. Or could it be that BofA has plans to over-weight the future role of transaction cards instead of deposits? Time will tell I suppose. Thanks again for the thought-provoking post.

By: prepaid guy

prepaid guy — Fri, 24 Apr 2009 16:03:29 +0000

In banking 1.0, I agree that debit cards are mostly an available feature of the checking account ‘product’.

Certainly things have evolved to include debit cards offering various rewards and benefits where a consumer earns airline miles, or cash back for purchases. These may differ card by card while the underlying checking account ‘product’ stays consistent. Marketing these different debit cards does take on a product marketing flavor, but in the end I agree the account is the main product.

If I were a retail checking account product manager at a large institution, I’d probably be a little worried about decoupled debit providers hijacking my interchange revenue, but in the end my accounts and deposits are intact.

I’d likely be more be worried about Bryan’s point – upstart open network General Purpose Reloadable prepaid issuers marketing low cost of ownership accounts (read: PRODUCTS) with features that were formerly only available in retail checking accounts: FDIC insurance, bill pay, remittances, no overdraft fees and even interest bearing savings purses.

Sweeten the pot by partnering with consumer brands and retailers offering co-branded reward programs and you have a game changer. If I’m a retail checking account product manager, I see these prepaid issuers able to target highly segmented, brand passionate consumers across geographic regions, stealing my deposits and fee revenue. See ING direct as a prime example of this kind of disintermediation. Low overhead, high value accounts with comprehensive features and relevant branding and rewards.

In my opinion, the co-brand affinity credit issuers would indeed be foolish not to be readying co-brand prepaid products (read: checking account 2.0) that work side by side with their co-brand affinity credit portfolio.

By: Chris Lamela

Chris Lamela — Fri, 24 Apr 2009 15:34:46 +0000

Carol,
I have been toting a Bank of America prepaid card among my stack of prepaid cards that I hold up when giving talks to show that they all look so alike – and in fact, pretty much all act alike. Any differentiation between them is discernible, though the importance of those differences is a function of consumer awareness and choice.

Your point of a prepaid card being a standalone product is clear for the sake of your discussion, and your used of “Decoupled” is a good descriptive term for that purpose. Your use of that term in your discussion about profit centers is well done.

But please, please, please do not introduce another term into the mix! It’s called prepaid.

- Chris Lamela

By: Ruben Sanchez, BSA Compliance Solutions

Ruben Sanchez, BSA Compliance Solutions — Fri, 24 Apr 2009 14:28:00 +0000

Carol,
Your argument that there is no discrete buying decision on a debit card is on point… up to a point. It is true that if you make the buying decision on the checking account that you open with a bank you just get the debit card as an element of this product – there is no decision to buy the debit card. But what about the unbanked that get a debit card without an “account”, in the form of a stored value card? No buying decision on the checking account, just the card. I suppose you can argue that a stored value card is not a form of a debit card (which I would disagree with), but then, you would have to agree that a stored value card is a discrete buying decision, and a product.

I really appreciate the discourse and your insight. Thank you for raising the issue.

By: Joe Young

Joe Young — Fri, 24 Apr 2009 13:15:32 +0000

Conceptually this is a wonderful post. I thought your opinion on what makes something a product and tying it to how it’s sold or marketed is great.

By: Emiliano

Emiliano — Fri, 24 Apr 2009 08:30:56 +0000

Payment Cards are trying to substitute the cash, as much as possible. We cannot immagine that our customers will create “own debts” (with a lot of possible solvency problems) for everyday shopping or as well for mid “relevance” expenses. Moreover, the European experience could teach the US banks that the customer will combine the usage of several kind of cards like prepaid, debts, “charge” credit card or “revolving” credit card according to their neeeds and as well the available budget. It will be fool – ad against the banks’ reputation- not to offer the debit card products, possibly cobranded with charge credit cards. The banks should look at the whole “customer card ratio”. And not only to their revenues.

By: Bryan Derman

Bryan Derman — Thu, 23 Apr 2009 18:36:42 +0000

Broadly speaking I agree, but the product definition may have something to do with the relative importance the consumer puts on various features.

I think most people would be define a payroll card or general purpose reloadable card as an independent product with a discrete buying decision. Yet, isn’t that really just a checking account product with the checking feature removed (as most such programs include bill payment, ATM access, and the other attributes of a checking account)?

Given the growing importance card transactions (and the declining volume of checks), an enlightened bank might decide to begin referring to this product as a “debit card account”, or perhaps, following the European vernacular, a “current account”.

By: pwb

pwb — Thu, 23 Apr 2009 18:07:12 +0000

I think I understand. However I think more attention needs to be paid to the discreet decisions that actually drive revenue: card usage. In that respect, I think debit cards kind of do need to be thought of as products.

Debit card unbundling doesn’t sound very interesting since the economics could never support a thriving market.