NACHA BITE: How Much of a Threat Is Decoupled Debit?

On Monday at the NACHA Payments 2008 conference, I attended a session on decoupled debit aptly named "Decoupled Debit: Threat or Opportunity?" During the session, HSBC's Daniel Eckert, SVP, payments products, and Mike Grossman, CEO of Tempo, an alternative payments company, spoke to a packed room about what exactly decoupled debit is and what it means for banks.Decoupled debit cards, unlike traditional debit cards, are not tied to a person's DDA. These cards can be issued by a financial institution that is not someone's primary depository financial institution. As a result, there are opportunities for retailers and other to become involved in this emerging payments scheme.

HSBC is one of the few financial institutions that have embraced decoupled debit as a part of its competitive strategy. The bank has partnered with Tempo and is now offering these cards as a new value added service to its commercial clients. Since the decoupled debit cards can be co-branded, Eckert said that it is gaining the attention of the bank's merchant customers.

Knowing what I already know about decoupled debit, what struck me as most interesting were the number of questions posed by the audience to both speakers. In fact, these questions did not crop up during the obligatory Q&A at the end, but in the middle of the presentation. "Can these cards be used at ATMs and at the point of sale to obtain cash?" "What will decoupled debit mean for interchange fees?" "Does an issuer need to be a financial institution?"

Although we're still in the very early stages of the evolution of decoupled debit, there's no doubt this new payments mechanism is an attention-getter. Whether a bank sees it as a threat to its existing relationships or as an opportunity to further expand its footprint and bring in new revenue streams will ultimately depend on the bank's operating model.