Debit Card Growth Slows, But Opportunities for Expansion Exist

Americans made $1.2 trillion worth of debit card purchases in 2007, which translated into $12.5 billion in interchange income, according to April's 2008 Debit Issuer Study. However, the study -- which was conducted by Oliver Wyman (New York) on behalf of Houston-based debit network PULSE -- reports a decrease in debit transaction growth: 14.4 percent for 2007 compared to an 18 percent growth rate for 2006.

While Cindy Ballard, EVP, communications and marketing, for PULSE, acknowledges that the decline in debit transaction growth is indicative of "a little bit of maturing in the marketplace," she points out that there are new avenues for debit usage -- such as business debit, bill pay and low-ticket environments (e.g., fast food outlets) -- that may see greater growth.

To support her assertion that future growth in debit is possible, Ballard cites the performance of the best-in-class issuers, defined by PULSE as the top 25 percent in each performance measurement. Although overall growth rates are down, these star performers exceeded the study's averages with more than 20 percent higher debit card penetration and more than 30 percent more transactions per active cardholder per month, according to Ballard.

Debit Innovator

New York-based JPMorgan Chase ($1.6 trillion in assets) is among the banks looking to pump new life into the debit business. Uniquely positioned in the debit card sector -- JPMC is both a card issuer and a transaction processor, in addition to possessing a proprietary platform for an end-to-end debit solution -- the bank is making strides in two areas of debit: government benefits through stored-value cards and payroll cards for the private sector, says Frank Dombroski, managing director, JPMorgan commercial card solutions.

According to Dombroski, JPMC's debit products now are in use in a number of new forms and venues. In May 2008, for example, the Colorado Department of Labor and Employment began paying unemployment benefits via a JPMC-issued Visa debit card. Another innovative JPMC debit deployment is the "every day is payday" payroll card for temporary employees of Nursefinders, a nurse staffing agency in Arlington, Texas. After completing a work shift, the cardholder is credited with the salary earned in as little as two hours after submitting an approved time card, Dombroski explains.

JPMC also offers new payroll card functionality called card portability, which enables cardholders to "carry" the card with them from one employer to the next, Dombroski says. It also allows cardholders to add funds (such as tax refunds) to their accounts from sources other than their employers, he adds.

The bank, Dombroski continues, is working to further improve the technology around its debit cards. "We have a host of initiatives, most around more convenient bill pay, more convenient access [i.e., ATM points] and mobile technology," he explains.

Further, JPMC is leveraging debit to penetrate the unbanked market. Within the next year, the financial giant will launch multipurse card functionality that will help those without a credit history build one, according to Dombroski. "Start the client with a debit card, then build a credit history to [help them] become banked," he explains.