Granted, Visa and MasterCard did concede a significant revenue stream as a
part of the recent settlement: It has been projected that the loss from debit
revenues hits overall card issuer and bank earnings by 1% to 2% from the
anticipated settlement by Visa and MasterCard.
However, our analysis indicates that this loss will be more than made up by
savvy debit card issuers that reposition and promote the use of their debit
cards for recurring bill payments and online transactions. Only 3% to 5% of
the more than $1 trillion in recurring bill payments are made with a
card-based instrument but healthy increases have been recorded recently with
Visa announcing a 26% growth rate for card-based bill payments for 2002 alone.
A key provision of the settlement is the elimination of the "honor all cards"
policy. In less than six months. the "honor all cards" requirement will expire
and dramatically change how you manage your debit card business. Going
forward, there will be one policy for credit cards, one policy for debit
This opens up new market opportunities for debit acceptance, especially for
recurring bills and online transactions. Now lenders such as credit card
issuers, mortgage companies, and many other recurring billers and online
merchants can now accept just debit cards, thus increasing the opportunities
for further exponential increases in electronic payments.
The repricing of signature debit will also make it a more attractive
alternative compared to automated clearing house items for enrolling consumers
for Internet bill presentment and payment.
Currently, Dove Consulting estimates that 100,000 new consumers are enrolling
each day directly with billers for Internet Bill Presentment and Payment
(IBPP), and they prefer to use their debit cards to register for electronic
payment. Heretofore, billers that wanted to accept just debit were also forced
to accept credit because of the honor all cards rule. This restricted many
recurring billers from even considering accepting any card-based payments.
Card-based enrollments simplify the payment registration process for IBPP,
eliminating the confusion of deciphering Routing and Transit and Demand
Deposit numbers printed in Magnetic Ink Character Recognition fonts on the
bottom of checks. And because 98% of all purchases on the Internet are
consummated with a card, the acceptance of signature debit capitalizes on
consumer familiarity with card numbers for "card not present" transactions.
Additionally, many billers report that prompting for cards also increases the
activation of automatic debits.
The acceptance of cards also simplifies biller back-office processes by:
- Accessing the address verification service (AVS) from Visa with real-time authorization
- Accuracy confirmed real-time with the additional benefit of fraud screens by processors
- Lower settlement risk
Additionally, now that they can "honor only debit," the value
proposition and economics for card-based payments become more
attractive under the pending settlement provisions. In fact, CardLine
reported in May 2003 that Visa was in active discussions to pursued
utilities other recurring billers to accept signature-based debit
cards for payment but not credit cards.
In the end, the unbundling of
credit and debit will actually increase card issuer and bank revenues,
just as it did in other industries, including computer software and
telecommunications. The new challenge is how to update your debit
strategy and turn the MasterCard and Visa settlements into a
resolution for expanding your debit card revenues starting when the
new rules take effect.