Banks Missing Debit Card Opportunities, Study Finds

Fraud and increased regulation seen as threats to growth; innovation greatest in emerging markets.

Banks have much room for improvement in their debit card programs, according to a multinational study released today by First Data.

The report incorporates data from interviews with 34 banks across a mix of 10 mature and emerging markets around the world. Interviews were carried out for by TowerGroup with participants from Australia, Brazil, Germany, Greece, India, Mexico, Poland, Turkey, United Kingdom and the United States. In addition, industry analysts from Asia Pacific, Europe and the Americas contributed perspectives and insight.

In emerging markets, the report suggests, banks should take a more vigorous approach to customer education and co-operation with retailers to increase debit card usage, especially at the point of sale. Debit card usage at the point of sale is as low as 10 percent in some emerging markets compared with 70 to 80 at participating banks in the United States.

Opportunities exist to improve the profitability of debit programs through the use of new payment channels such as mobile, prepaid, contactless and e-commerce, the report said, particularly for to the youth market. [It did not specify how new payment types would increase profitability, but presumably by banks charging transaction fees that are higher than debit card interchange fees.]

Mobile and prepaid solutions will help bring electronic payments to the unbanked and underserved populations in developing markets – and are already being introduced for this purpose by banks in Brazil, Mexico and Turkey. [As well as Kenya.]

The report suggests that banks should apply some elements of their credit card programs to debit cards, such as segmentation and reward programs.

Increasing debit usage at the point of sale is a priority for banks in Europe and in emerging markets where ATM withdrawals can account for up to 90 percent of debit card transactions, the study found. In India, banks reported that a one-percent increase in debit activation can drive a 20-percent increase in transaction volumes, demonstrating the potential upside for banks.

Lotteries, instant rewards, advertising and in-branch promotions are being used to promote cards at the point of sale in some markets. Retailers can also help to drive debit in emerging economies by socializing the use of cards at the point of sale.