With consumers increasingly shifting spending to debit, Total System Services Inc. has developed a way to help credit issuers retain those transactions by combining both functions in one card.
The TSYS Hybrid card, which the processor is expected to announce today, is positioned as a credit card to which consumers may link accounts at any bank — an approach that has the potential to help issuers poach debit transactions from other banks.
The system borrows some elements of decoupled debit, a controversial concept that has been kicking around for several years but has yet to catch on.
The TSYS product might appeal to consumers because it does not require any jarring changes in their payment habits. Sarah Hartman, the senior director of payment solutions at TSYS, of Columbus, Ga., said cardholders can connect up to five deposit accounts to the card, including those from banks other than the issuer. This means the issuing bank "would capture more transactions, which is a very big item," she said in an interview Wednesday. "They make sure that their card is the card which the consumer is using for payment purposes."
From the outside, a hybrid card looks and operates like a standard credit card; consumers who enroll a bank account may also set rules for how each transaction is handled. For example, all payments under $100 or all purchases at grocery stores could be handled as debit, and all other transactions would be routed to the credit account. Cardholders may even switch payments from one account to another after the fact.
All the decision-making happens with TSYS' network, so from the merchant perspective all purchases are handled as credit transactions, and carry credit interchange rates, Hartman said.
"The Hybrid card itself is a credit vehicle as far as it looks from the up-front decisioning," and that's "how it works from a processing perspective," she said.
No issuers have agreed to offer the TSYS Hybrid card, but many have expressed interest, Hartman said. Because payments drawn from banks other than the issuer are routed across the automated clearing house network, she said, the card is currently available only in the U.S.
Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham, Mass., said TSYS Hybrid could help banks upsell heavy debit users to a bank's credit card.
"It might be most interesting to smaller banks that have a debit card and want to upgrade that" client base to a credit product, he said. They could offer the customers a Hybrid card "and say, 'You can still use this as a debit card,' " he said.
Several companies have evaluated decoupled debit cards in recent years, notably Capital One Financial Corp. Under the original model, an issuer would provide the card and consumers would enroll accounts at any bank; transactions would move from the merchant to the issuer on one of the card networks and then be transferred to the ACH system to access a cardholder's bank account.
In 2007 Capital One tested a card that ran on MasterCard Inc.'s network, but the program was shut down in 2008. Tempo Payments Inc. has tried to promote various decoupled models in recent years, including asking merchants to issue the cards; when large merchants proved reluctant to participate, Tempo switched to a cobranded approach, and now is focusing on affinity cards for special-interest groups.
The hybrid system is likely the first decoupled product that also includes credit.
Beth Robertson, the director of payments research for Javelin Strategy and Research in Pleasanton, Calif., said the TSYS model seems to be an improvement over the original decoupled approach.
"The whole decoupled piece is kind of interesting, because it really does retain that whole issuer revenue stream but gives consumers a perceived flexibility," Robertson said.
Its rollout is timely, she said, because consumers are increasingly choosing debit over credit.
Hartman said cardholders could use it to manage their spending. Each day, TSYS would assemble a list of transactions made with the card. If the debit payments come from an outside bank account, the funds would be moved over the ACH network. If the deposit account is at the same bank that issued the credit card, TSYS would send a file to the bank so it could handle the transfers internally.
Cardholders could also move transactions between accounts, as long as they do so before the credit account's billing cycle ends. For example, a consumer could specify that all grocery store purchases be handled as debit payments, but could move a particularly large shopping run to the credit account.
For TSYS, the Hybrid card also means plenty of cross-selling opportunities. Issuers that offer the Hybrid card could also use TSYS' mobile alerts system, its analytics platform or its loyalty platform.
Brian Riley, a research director in the bank cards practice at TowerGroup in Needham, Mass., called the TSYS Hybrid card "a novel product for the industry" that "positions TSYS phenomenally."
There is, however, some untapped potential, he said. Though TSYS said the online control panel can be accessed through smart phones and the product itself can be linked to mobile alerts, TSYS could do more to attempt to link the Hybrid card to cell phones, he said.
"Mobile banking [and] mobile payments really had limited growth this year because everybody had bigger fish to fry," Riley said. "If they can link this to a mobile platform, then they've got an incredible home run on this."
