LAS VEGAS – The debit card is dead. Long live the debit card.
That was the silent cry of consumer bankers at an industry conference last week that became part rally, part wake. Far from Occupy Wall Street and the epicenters of Bank Transfer Day, executives rubbed shoulders at the Bellagio, sipping Prosecco and traipsing to afterparties in a bar modeled after a chandelier.
More than 1,100 bankers, regulators, card executives, consultants and vendors gathered for the annual event devoted to the debit card and related products. But all the pizzazz and Vegas glitter couldn't hide the bankers' frustration as they tried desperately to figure out where their debit card strategies all went wrong – and what, if anything, they can do next.
"You're not going to innovate your way out of this ditch that we're in … quickly," Whitney Stewart, a senior vice president at SunTrust Banks Inc., told audience members during a panel discussion on Thursday.
That ditch opened a month ago, when regulations slashing the profitability of banks' debit card operations took effect. One industry attempt at "innovation" had imploded mere hours before the conference began, when Bank of America Corp. scrapped its plan to start charging customers for using their debit cards.
Debit cards may no longer be very profitable for banks, but they remain popular among many customers – so popular that the industry's attempts to start charging for their use drew widespread protests and criticism from politicians including President Obama.
SunTrust this summer became one of the first banks to start charging customers $5 a month for using their debit cards, and Stewart said the effort was largely successful until B of A got involved.
"It was going well. We were selling accounts, existing customers were sticking with us. We never could have anticipated the consumer reaction that came from Bank of America's announcement … or the unfortunate comments our president made, which were uncalled for," Stewart told attendees.
Now that B of A had inadvertently hammered the final nail in the coffin of debit-card fees, bankers at the conference had few answers about what to do next.
B of A executive Laurie Readhead had the unfortunate luck to be scheduled to speak about the bank's "evolving consumer model" on Thursday, two days after her bank backtracked on fees. She persevered, briefly defending B of A's debit-fee effort as "transparent," if not fully thought out.
"We wanted to be clear with our customers that we were looking at rolling out a debit card fee. We did not know yet how we were going to do it, but we wanted to go ahead and put it out there," she said during a presentation at the ATM Debit & Prepaid Forum.
The annual conference was sponsored by American Banker publisher SourceMedia Inc.
But Readhead, who took no questions after her speech and declined interview requests, had few concrete answers about what the industry should do next.
Nor did many others. Robert A. DeAngelis, an executive vice president of KeyCorp's community banking operations, warned attendees that efforts to charge customers more for their checking accounts would create a "vicious cycle" and a "payments dark age."
His bank wound up on the right side of the industry's failed debit-fee experiment. Key is one of the larger companies that decided not to charge customers debit card fees, and DeAngelis told American Banker that the bank has now picked up some customers from the bigger banks that did try charging fees. (He called the evidence "anecdotal" so far and would not quantify the number of customers KeyBank acquired in the past month.)
Durbin was acting as the Wal-Mart puppet when he specifically wrote the amendment to insure that banks could not encroach upon the Wal-Mart MoneyCard domain. Little noticed and buried deeply in the gobbildy-gook in the Durbin Amendment was the language that would exclude certain prepaid debit cards such as Wal-Mart's MoneyCard and EBT cards from any restrictions at all. Wal-Mart for years has tried unsuccessfully to become a bank to the unbanked and they finally achieved that by issuing the Visa-backed pre-paid debit card. Oh, by the way, Mal-Mart is also the largest source of EBT transactions in the country. They are free to add any sort of transaction fee or surcharge on all non-food EBT transactions as they see fit. Further, they can charge any merchant that accepts their MoneyCard as much as they like. They charge merchants about 50 cents per "swipe" now; what do you suppose Wal-Mart's cost is?? I'm guessing less than a few pennies. Plus, if Durbin was so interested in protecting the retailers, why did he write the amendment in such a way as to allow retailers to offer their own cards to each other and charge whatever fee they felt like.
Heaping scorn on the banks is Durbin's way of distracting the public from looking at who the real winners (Wal-Mart) and losers (the poor) are in the "swipe fee" wars.
Perhaps Michael Cook can shed some sunlight on this topic.
The debit product has been taken for the same wrong ride and has seen very little of its potential developed. I'd say that debit is embryonic as we know it and it will take a totally different perspective to make it work for banks and networks through its capacity to fulfill customer satisfaction. The new regulations have done nothing more than to take everyone out of their comfort zones, now it is time to think. I have seen this throughout the world and the story repeats itself everywhere. The only reasonable explanation is that networks have been doing a poor job in product definition and profile, while banks have listened without questioning.