Much of the initial resistance to Capital One Financial Corp.'s decoupled debit card program came from small banks concerned about losing some control of — and revenue related to — their customer relationships.
But in the end, a little-noticed rule interpretation Nacha released in November may have dealt the program a bigger blow.
The payments group's interpretation, set to take effect in August, bars the aggregation of transactions into a single automated clearing house payment. That decision undermined one of the key cost benefits associated with the concept of the decoupled card. (Community bankers had complained that aggregating could lead to customer service problems.)
Capital One said last week that it will stop processing payments May 10 on decoupled debit cards issued through partnerships with two merchants, though the McLean, Va., company has not shut the door on the concept completely.
In November, Nacha issued a
Elliott McEntee, the Herndon, Va., trade group's president and chief executive, said a bank member, which he would not name, asked it to address the aggregation question specifically in response to the Capital One cards, which combine several purchases into one ACH payment. He agreed that barring aggregation would "create more transactions" for Capital One, though he would not speculate on how much the issuer's costs would increase or whether that was a factor in the decision to unwind the two programs, with the convenience store chain Sheetz Inc. and the grocery chain Ukrop's Super Markets Inc.
Nacha spokespeople would not say Monday why it does not permit this kind of aggregation.
Capital One spokeswoman Pam Girardo said Monday that her company would comply with Nacha's rules, but would not say whether it was a factor in the decision to unwind the two programs, which she described as "tests."
However, Ms. Girardo said that Capital One continues to develop decoupled debit products. "We're testing a lot of different things."
John Buhrmaster, the president of First National Bank of Scotia, in Scotia, N.Y., said one of the major concerns in the industry over Capital One's decoupled cards was the lumping of numerous purchases, probably once a day, into a single ACH payment, which would appear as a single item on a statement without details for individual transactions.
"Many community bankers felt the idea would not work, based on the way Capital One planned to aggregate transactions," Mr. Buhrmaster, the chairman of the Independent Community Bankers of America's payments and technology committee, said.
The group, which offers card services through its ICBA Bancard, has been a vocal opponent of Capital One's program.
He and other bankers said that customers would find it hard to discern where they had spent their money, and that it would be very difficult to handle a single fraudulent transaction included in an ACH batch with many good ones.
"That would be a nightmare scenario for us, customer service-wise," Mr. Buhrmaster said.
Viveca Ware, the director of payments and technology policy for the ICBA, said that barring aggregation was "certainly going to increase costs" and would make it very difficult for Capital One to predict its expenses. "Suddenly you have an variable cost model, because you have no way of knowing" how many purchases cardholders would make.
Capital One's decoupled debit cards move transactions across the MasterCard Inc. network from merchants to Capital One, which then forwards them across the ACH network to cardholders' banks for settlement.
Not all decoupled debit cards are using aggregation.
Mike Grossman, the chief executive of Tempo Payments Inc., which offers decoupled cards with HSBC North America Holdings Inc. said his company does not aggregate. "We thought it would violate Nacha's rules, and were surprised that Capital One tried to do it differently."
However, he does not expect Capital One to exit the space. "They developed this idea over a long period of time and want to test many things," he said. "My guess is they are not moving away from decoupled debit, but they are going to focus on offering it to" their credit card holders."
