Academic journal article ABA Banking Journal

Is It First and Goal for Debit Cards?

Academic journal article ABA Banking Journal

Is It First and Goal for Debit Cards?

Article excerpt

After two decades of going nowhere, the debit card, particularly the offline debit card, has . taken off. About 21 million house holds now use an off-line debit card, 75% more than last year. While on-line debit cards, mostly in the form of automated teller machine cards, exist in great variety, off-line debit cards with a few exceptions comprise either a Visa Check card or a MasterMoney card. Both cards are linked to the customer's checking account and transactions are secured with a signature--not a personal identification number. Purchases are deducted from the customer's checking account after being routed through the Visa and MasterCard clearing systems.

In the first quarter of 1996, Visa had 34.5 million Visa Check cards out, a 50% increase over the first quarter of 1995, and MasterCard had issued 9.2 million MasterMoney cards--a 91% growth rate over the year before.

Over 4,000 banks now issue off-line debit cards--3,100 the Visa Check card and 1,100 the MasterMoney card. That's over 100% more than last year. The purchase volume of off-line debit transactions was over $10 billion last year.

Fifty-five million households have online debit cards. As mentioned earlier, these are ATM cards that are also accepted at the point of sale at 261,000 merchants. The difference between online and off-line debit cards is becoming increasingly blurred, as the majority of off-line cards can also be used for online transactions.

A misunderstood product

Why, all of a sudden, has debit caught on at the point of sale? "I think some banks finally woke up and realized that there really is revenue here and that it really is a value-added product," says Mark Jackson, vice-president of electronic banking at Boatmen's Bancshares, St. Louis. "If any product over the years has been misunderstood, it's been the debit card. I worked at a bank in Louisville where we introduced the debit card in 1978. I've seen the product for a long time and I think folks just CD finally realized what the debit card was all about. And maybe folks just got tired of waiting for online to take off."

The card associations, banks, and merchants have all contributed to the rise of debit, according to John Grant, vice-president and debit card product manager at U.S. Bancorp.

"Visa and MasterCard have realized that if they push this to the members, the members will realize the benefits to using this existing infrastructure in the payments system and that there's very little cost," he says. "Banks have realized a revenue stream that didn't exist five years ago. Technically it did exist, because Visa introduced the check card product in the early '70s, but it just didn't take. And as merchants have gone through the first and second generation of implementing online transactions, they've softened their position and they've had to examine the costs of doing business by taking cash, checks, and online debit. If they're going to take those they might as well take a Visa or MasterCard from anybody who walks in their store."

Visa is putting most of its eggs in the debit card basket. "Off-line debit is our premier product and the one that going forward has the most potential to grow and expand," says Visa spokesperson Susan Forman. At the end of this fiscal year (in September), Visa will have spent $20 million in advertising the Visa Check card for this year, and next year the ad budget will be bigger. Visa does not allow banks to use its home banking services unless they offer the Visa Check card.

MasterCard is promoting MasterMoney with a Smart Money rebate program that rewards customers for using the card, and a sweepstakes program for which the grand prize is a Chrysler convertible.

You have to work at explaining it

Some of the holdup with off-line cards has been due to consumers' confusion about what they are. "In many cases, the banks have chosen not to use the offline debit brand [names] created by Visa and MasterCard," says Ed Neumann, director at Dove Associates, Washington, D. …

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