The debit card is dead. Long live the debit card.
This was the silent cry of the consumer bankers who had gathered for the 2011 ATM, Debit & Prepaid Forum. Part wake, part pep talk, the event got underway just hours after Bank of America scrapped its plan to start charging customers $5 a month to use their debit cards. The turn of events dominated the discussion on the panels and in the hallways, stealing the spotlight from other topical issues like mobile payment solutions.
The frustration was palpable as bankers tried to figure out where their debit card strategies had gone wrong, and the Las Vegas setting made the conference a fitting place for attendees to start wagering on where the business could possibly go next—not that anyone seemed to be in much of a betting mood.
BofA retail executive Laurie Readhead had the bad luck of having to present the bank's "evolving consumer model" at a panel just two days after her bank backtracked on the fee. She persevered, briefly defending BofA'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.
Fair enough. But BofA's initial announcement of a forthcoming fee, which even drew criticism from the Oval Office, spoiled the experiment of banks that had moved earlier, like SunTrust Banks, which this summer became one of the first institutions to start charging customers a $5 monthly debit-card usage fee.
"It was going well. We were selling accounts, existing customers were sticking with us," SunTrust Senior Vice President Whitney Stewart told conference goers in a session entitled Issuer Strategies in a Post-Durbin World. "We never could have anticipated the consumer reaction that came from Bank of America's announcement."
Now that BofA had inadvertently hammered the final nail in the coffin of debit-card fees, bankers at the conference had few ideas for next steps, and were resigned to the notion that recouping lost fee income would take not just new ideas, but a significant amount of patience.
"You're not going to innovate your way out of this ditch that we're in ... quickly," Stewart said.
Readhead, who took no questions after her speech and declined interview requests, had few concrete answers as to 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.) Other executives were more expressive in their rejoicing over their larger rival's misfortune.
"God bless Bank of America for announcing the $5 fee. It's created an immense opportunity in the marketplace ... and we think that will be a very material item over the next couple of years," said Jim Hanisch, an executive vice president of the Co-Op Network, which processes ATM transactions for credit unions.
The trade group CUNA estimated that through early November, some 650,000 consumers had closed their bank accounts and transferred their money to credit unions in the wake of B of A's initial debit card fee announcement on Sept. 29.
DeAngelis said that Cleveland-based Key is focusing on building customer relationships—which is what pretty much everyone else in the industry is trying to do at the moment. But with new regulations eliminating several billion dollars of debit interchange revenue that banks had gotten used to collecting from merchants, even those banks that are successful in gaining more business from existing customers will still find it difficult, if not impossible, to compensate for the shortfall.
The name of Sen. Richard Durbin was invoked frequently, and rarely lovingly, over the conference's four days, almost all of which seemed to be inspired in some form by the Illinois Democrat's amendment to the Dodd-Frank Act. Oliver Wyman partner Tony Hayes, who chaired the conference, predicted as much from the outset.
"The theme that is going to permeate our conference, of course is Durbin," Hayes said in his welcoming address to the 1,100 bankers, regulators, card executives, consultants and vendors who had gathered for the event, which is presented annually by PaymentsSource, one of American Banker Magazine's sister publications at SourceMedia.
DeAngelis compared the Durbin amendment to a "meteor hitting the earth" of the payments industry. MasterCard's Leland Englebardt took a familiar, if futile, swipe at the law, telling attendees "We're only 33 days into the new era-of government price-fixing."
Even the merchants who lobbied hard for the Durbin amendment complained about its effects—although their main concerns were far from those expressed by most of the conference's attendees. "I don't think we gained anything from Durbin ... other than we identified an advocate in the Senate," Robert Donovan, U.S. assistant treasurer of McDonald's., told attendees. The fast-food chain does not expect to pay less in interchange fees as a result of the law and could even pay more per transaction, he said. That's because most McDonald's purchases are small-dollar amounts, which on the old percentage basis typically cost less than the new interchange cap of 24 cents, which is barely more than half the former 44-cent per-transaction average.
Michael Cook, the treasurer of longtime payments industry adversary Wal-Mart Stores, also cited "some disappointments" with the final law. But his outlook on regulation was much sunnier than that of most bankers at the conference.
"It's a good start for future regulatory reform that will take place in credit as well," Cook said. "There's a lot of shoes to drop yet."
Maria Aspan is the consumer finance editor of American Banker.
