Debit Card Takes Center Stage at Industry Conference

If packaged and marketed appropriately, a debit card can be positioned as the key to the relationship between a bank and its customers, according to Robert D. Sznewajs, the vice chairman of U.S. Bancorp.

Mr. Sznewajs recommended, however, that the card not be limited to use at automated teller machines and point of sale locations. He suggested that it also be used as the entree to a full menu of services, such as PC bill payment, money market funds, and any other retail services offered by the bank.

"Why is this important to financial institutions? Because it mitigates product commoditization by bundling services that can be customized for a customer segment of one," said Mr. Sznewajs in his keynote speech at Faulkner & Gray's Debit Card Forum last week in San Diego.

Mr. Sznewajs set the stage for two information-packed days of exhibits and conference sessions on topics such as cobranding debit cards as well as setting the appropriate price to encourage customers to use the cards.

The conference attracted 420 people, including 140 people exclusively working the exhibit hall.

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The presentations on pricing strategies, featuring speakers from First Chicago Corp. and Barnett Banks Inc., generated the biggest response from audience members.

First Chicago's Thomas Tremain defended his bank's much-publicized decision to charge customers $3 for visiting a teller for transactions that could be handled through electronic alternatives.

"Our objective was to reduce the number of unprofitable customers," said Mr. Tremain, vice president and manager of electronic banking. "Ten months after the announcement, I can report that we've had a 20% account attrition, and that the accounts we lost were mostly unprofitable, with average balances of half our balance requirement."

Mr. Tremain did express regret for the way the new pricing policy was announced, saying if he could do it again, he would send direct mail to customers rather than calling a press conference.

He said there was an unanticipated benefit from the negative media barrage: customers were so frightened of accruing fees that they changed their electronic banking behavior more quickly than the bank had expected.

First Chicago customers now conduct 80% of their transactions through electronic means, he said, up from 70% a year earlier. They also deposit more checks into ATMs than they do at teller windows.

"We believe we've had such great success because we had changed our ATM menu of services to allow split deposits and deposits with cash back, mimicking the transactions that had happened at the teller," he said.

While some audience members scrambled to copy the First Chicago pricing plan into their note pads, others openly scoffed at the idea of charging customers for teller visits.

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Barnett Banks eschews the First Chicago approach, said Len Ferman, director of self-service banking. Instead, the Florida-based bank keeps its fees low and uses training and incentives to get its customers to move toward electronic alternatives to tellers.

Bank executives hold regular customer focus groups to get to the bottom of questions like why consumers will take cash out of ATMs, but not put deposits in. Mr. Ferman said that consumers said they distrusted the machines and were unfamiliar with the process. Consumers also expressed concern about deposit availability and ATM availability.

To respond, Barnett did five things:

*Mailed $1 practice checks as an incentive. Customers had to deposit these checks at the ATM to get the credit.

*Increased deposit availability, so that funds from a deposit made to an ATM could be withdrawn as soon as teller-deposited funds.

*Added ATMs, especially in shopping areas.

*Installed ATMs that display images of the deposited checks.

*Introduced other incentives to get customers to deposit into an ATM.

"We found that customers do not react well if you force them to electronic delivery," said Mr. Ferman.

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Usage incentives are also popular for off-line debit card programs.

"Statistics show that if a consumer does just three successful debit transactions, that consumer will continue to use debit cards," said Alexander McKeveny, senior vice president of marketing and product management for MasterCard International. The trick, he added, is to get customers to complete those three, and "then you're likely to get a good customer."

The Purchase, N.Y.-based card association works very closely with banks that issue its MasterMoney off-line debit product, and builds custom incentive programs for each target market, said Mr. McKeveny.

MasterCard will soon introduce its Express Lane sweepstakes, a promotion intended to strengthen customer relationships with financial institutions and participating merchants.

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Credit card issuers have been leveraging the power of cobranding partners for years. Now they say it's time for debit card issuers to follow that lead.

Bank IV of Wichita, Kan., linked up with Dillons Supermarkets for this purpose, according to Jerry Lester, president of Bank IV. The result, he said, was positive for the bank, the merchant, and the consumers.

"What is the benefit to the bank?" he asked. "We get new customers, we satisfy the needs of existing customers, and we establish a strong merchant relationship."

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