Jeffrey Green

Bank card issuers last year faced numerous obstacles challenging their profitability potential. Chargeoff growth late in the year driven by a new bankruptcy reform law, increases in minimum payments and transfers of credit card debt to home equity lines of credit all created the likelihood that issuer profits would take a hit in 2005.

North American payment-terminal makers should be smiling these days. In 2005, rollouts of contactless card programs along with greater demand for wireless and Internet-connected terminals all helped create potential churn in the terminal market.

Issuers for years have systematically delivered signature-based, or offline, cards deeper into their overall base of debit card customers to drive greater revenue from their portfolios. Similarly, issuers have established policies designed both to encourage signature use and to discourage PIN use.

Not long ago payment-terminal makers started trying to differentiate themselves by adding bells and whistles to their devices, including support for loyalty and other ancillary programs. When enough merchants didn't bite, the vendors began to emphasize lower-cost machines that supported basic debit and credit card acceptance. In both instances, the goal was to create market churn, as many retailers like their aging, yet reliable, terminals.

More industry observers are acknowledging an emerging truth: Many U.S. consumers today are more likely to leave home without their wallets than without their cell phones. Unless the payment industry addresses this trend, possibly through collaborations with telecommunications companies, consumers' need to stay connected could result in new competitors venturing into the point-of-sale payments market, experts say.

As we start the New Year, a look back at some of the issues and potential trends that emerged in 2005 suggest this year the energy stirring up change in the industry could be just as potent. Contactless and biometric payments, data security, continued emergence of prepaid card products, the effects of bankruptcy reform, and payment systems that compete against traditional bankcards are among the various topics expected to receive high-level attention again in 2006.

The signs are growing that PIN debit may be about to gain momentum.

Consolidation in the banking industry is providing the largest debit card issuers with a much greater share of overall transaction volume in the signature-based, or offline, debit market. As a result, the industry behemoths have attained significantly greater leverage than small and mid-tier issuers to negotiate better prices with vendors.

Over the years I have found the relationship between merchants and the card associations to be an interesting one. While retailers increasingly are crying foul over the rising cost to accept payment cards, many view plastic as a means to bring more customers into their stores.

These days, it's not uncommon to know of someone who has had his or her identity stolen. Many have their own ID-theft experiences, including myself. I actually have two.

In your hands is the inaugural issue of Cards&Payments, the successor to Cards & Payments magazine. During SourceMedia's Card Forum & Expo in ChampionsGate, Fla., last month, I had a chance to speak with many of you about the name change. Surprisingly, I received no negative reaction to the move.

MasterCard International in 2004 continued to make strides in the U.S. debit card market. While MasterCard credit card issuance and transaction volume still far exceed those of debit MasterCard, the card association still views cash and checks as its primary competition, and debit as its main weapon in that battle.

While H&R Block is testing a prepaid card program at 200 of its U.S. store locations (see main story), the tax-preparation firm announced earlier this year that it is working with a leading convenience-store chain to provide 24-hour access to a check-cashing service for its customers who obtain refund-anticipation loans.

Intuit's Web site prepares tax returns electronically, enabling unbanked users to automatically apply for and receive a prepaid card account into which they can have their tax refunds directly deposited. Will the young adults the company is trying to attract embrace the service?

Smaller North American payment terminal vendors are turning to their global counterparts to seek ways to compete against bigger market players. Will these companies find that two heads can work better than one?

There are lots of tech start-ups in the payments industry, but one, Way Systems, has something many don't have-backing from some of the industry's founders.

After a year of evaluating the effects of evolving signature-debit interchange rates in the aftermath of Visa USA's and MasterCard International's combined $3 billion in settlements in the merchant antitrust lawsuit, it appears more debit card issuers now are ready to launch rewards programs. Smaller financial institutions, in fact, face losing customers if they don't, observers say.

Discover Financial Services, the No. 5 domestic credit card issuer, took a major step in November to begin playing in the U.S. debit card market. By announcing plans to buy the Pulse EFT Association for $311 million, Discover hopes to use Pulse's extensive financial-institution connections to compete with Visa USA and MasterCard International for issuance of signature-based (offline) debit cards.

Visa USA believes both issuers and merchants will embrace what it calls "better symmetry" between the acquirer-paid interchange rates applied to personal identification number-based Interlink and signature-based check card purchases. The card association in early November announced plans to reduce the interchange applied to check card purchases and raise Interlink's rates in April.

Consumers increasingly are using their personal identification numbers to initiate debit card purchases. But how often such transactions occur is less than previously believed, the recently released 2005 edition of the ATM&Debit News EFT Data Book shows.