-
Bank of America Corp., the largest bank by assets, plans to start charging its checking customers $5 per month, or $60 annually, if they use their debit cards to make purchases. The fees will go into effect early next year.
September 29 -
Regulatory reforms may help MasterCard steal debit card market share from Visa, but it's not clear whether that would do much for its bottom line.
September 24 -
For today's consumers, there's nothing like cash on the barrelhead — and that's giving Visa Inc., with a stronger debit card foothold than MasterCard Inc., an advantage in the competition for card transactions.
February 4
Three years ago, MasterCard Inc.'s success in stealing a major bank's debit business could have been a game changer.
But in the wake of new regulations dampening the debit industry's profitability, MasterCard's latest victory seems more like a consolation prize.
The second-largest payments network picked up some bragging rights on Thursday, when Huntington Bancshares Inc. announced that it will be
The deal was the latest part of MasterCard's campaign to
"At a minimum, debit growth is going to come down appreciably, and quite possibly it will go negative," says Eric Grover, a payments consultant with Intrepid Ventures.
New federal rules that went into effect this month capped the interchange fees that banks collect from merchants every time customers buy something with their debit cards. Banks are expected to lose more than $5 billion in annual debit interchange revenue next year as a result of the so-called Durbin amendment to last year's Dodd-Frank law. Now many of them are taking steps to discourage their customers from using debit cards.
Bank of America Corp. recently said it will start
"I think consumers are going to become much more discriminating as to how and when they use" debit cards, says Madeline Aufseeser, a senior analyst with Aite Group.
"On one end of the spectrum you're going to see some consumers that are going to migrate back to credit," says Aufseeser. "On the other end of the spectrum I think the prepaid market is going to expand immensely."
The new fees at Bank of America and other large banks could start to reverse debit's recent popularity, which increased during the recession as consumers cut back on buying all but household necessities. At the same time, MasterCard lost its biggest debit card customer as JPMorgan Chase & Co. bought Washington Mutual Inc.'s operations and converted the debit card portfolio to Visa.
MasterCard has made some
And for the time being, debit is still very popular with consumers. Visa recorded 28.4 billion debit transactions in 2010 and MasterCard recorded 8.7 billion, according to data from PaymentsSource.com.
That means that at least until the full impact of the recent regulations is known, the pot of money to be made on debit transactions is still vast. And analysts predict that some consumers, especially younger ones, are likely to continue relying on debit cards instead of credit cards.
"We'll see maybe a little diminution, but we're not going to see debit go away," says Patricia Sahm, a managing director with Auriemma Consulting Group.
She says that younger people are
"They can move more readily than baby boomers because they don't have all the entanglements" of a complex banking relationship, including mortgage or auto loan debt with a particular bank, Sahm says.
And like some of its smaller competitors, Huntington is counting on the new fees at other banks to actually help it win some new debit card and checking business. The Columbus, Ohio-based bank says it will keep its new debit MasterCard "fee free" in an attempt to woo disenchanted customers from competitors.
The bank, which is the 34th largest holding company by demand deposits, currently has about 1.5 million consumer and business debit cards. Mary Navarro, Huntington's senior executive vice president and director of retail and business banking, told American Banker in an interview that the services MasterCard can provide with its new "platinum" debit card will help Huntington differentiate its checking account from other banks.
She would not discuss the deal's specifics, but analysts say that price was likely a deciding factor for Huntington's decision to switch networks.
Huntington is "probably getting a better deal from MasterCard than they got from Visa. MasterCard is hopping right on the opportunity train and I think it's a smart move to try to win business over at this particular juncture," Aufseeser says.
MasterCard spokesman Seth Eisen says the company will "continue to look for opportunities to incentivize new deals as we can." Visa did not respond to a request for comment.
