Banks using new tactics to encourage debit use
Back to basic approach in response to recession
Banks are using new tactics including instant issuance to encourage greater use of debit cards.
According to the fifth-annual debit card study by US debit/ATM network Pulse, 72 percent of US issuers view improving the performance of their debit portfolios by increasing penetration, activation and usage as a top priority this year.
One of the key tactics issuers are using to accomplish this is the deployment of instant issuance technology with cardholders receiving a debit card at the branch as part of the process of opening a demand deposit account, rather than in the mail.
In 2009, 35 percent of issuers offered instant issuance in either some or all of their branches, up from 28 percent in 2008. Those institutions considering implementation of instant issuance increased to 36 percent in 2009, from 26 percent a year earlier.
“Although instant issuance can result in higher issuing costs, financial institutions offering instant issuance can benefit from increased profitability, greater customer satisfaction and better security,” said Cindy Ballard, executive vice president of Pulse.
In addition to instant issuance, the study found that issuers are adopting a “back-to-basics” approach in response to the recession. Many financial institutions are focused on acquiring new account holders and encouraging current customers to use their cards for small-ticket transactions, such as coffee and quick-service restaurants. Issuers also are exploring several approaches to engage debit cardholders through targeted marketing campaigns, offering incentives and emphasizing the benefits of debit over alternative payment methods.
To expand their debit portfolios, the study found that many issuers plan to either introduce a new business debit card program or offer debit products to current business account holders. In support of these efforts, some issuers surveyed plan to conduct direct mail campaigns targeted at small business owners.
“Although 70 percent of financial institutions issue business debit cards, this segment comprises only six percent of the total debit card market,” said Tony Hayes, partner at Oliver Wyman, which conducted the study for Pulse. “Many issuers are recognizing the untapped potential in the business debit market. Some 30 percent of survey participants named business debit as one of their top growth areas this year.”
The study also found that debit card rewards programs are an area of focus for financial institutions this year, with 58 percent currently offering a rewards program, up from 53 percent in 2008. Although the number of issuers offering rewards increased, only 17 percent are considering launching a rewards program this year, compared to 24 percent that contemplated initiating a program in 2008.
Even with interest in rewards seemingly waning, 36 percent of issuers identified rewards programs as a growth opportunity in 2010. Some issuers surveyed believe that rewards programs increase overall debit volume, create a competitive differentiation and strengthen relationships with cardholders.
“Uncertainty about the economics of the debit card business post-Regulation E revisions and the Durbin Amendment has increased concerns about the cost and self-sustainability of rewards programs,” said Hayes, “but many issuers are placing more emphasis on checking-account-based and relationship programs that could potentially bring more benefit for issuers beyond just spend associated with debit cards.”