Bankers are concerned, but also intrigued, by the notion of a debit card that uses the automated clearing house network to link to customers' accounts at any financial company.
Some said the cards could attract new customers, while others said inserting a third party into a relationship that has long included only banks and their customers could create problems in areas such as risk management and authorization.
The idea is not new; some bankers said they had been considering variations of the product for at least a decade. But two companies — HSBC North America Holdings Inc. and Capital One Financial Corp. — have endorsed the concept in a big way.
HSBC said last week that it plans to start testing a card in August. Its primary card business is issuing private-label store credit cards. But Daniel Eckert, the head of venture, acquisition, and development for the company's cards and retail services unit, said the product it is developing would let HSBC "tap into a customer segment that we may not have otherwise been tapping into through these merchant relationships."
Robert Sims, the director of product management for Chittenden Corp., a Burlington, Vt., holding company with six community banks, agreed that an ACH debit card could be used as an acquisition tool.
Now that services such as direct deposit and Internet banking have become "ubiquitous," it has become tougher for banks to acquire primary checking accounts from competitors, he said in an interview.
"An innovation like this" would give bankers a way to draw new customers "by simply moving their debit card over," Mr. Sims said. "Then once we've gotten that piece of business, we can use that as the camel's nose in the tent to get the rest of their business and bring it over."
Also, just having the debit piece of the business would give the issuer an appealing new source of revenue, he said.
Capital One's new card generates "pure fee income," since the issuer is "going to be getting interchange revenue but paying for it with ACH expense," Mr. Sims said. "It's like shopping at Brooks Brothers but paying Wal-Mart prices."
David Bowen, the executive vice president of retail deposit products for National City Corp., said the Cleveland company had considered developing an ACH debit card a few years ago, but instead it began offering a comprehensive rewards program about 18 months ago that offers customers points for their entire banking relationship. This strategy allows for better customer service than having just "a slice" of a consumer's banking relationship, he said.
Customers want "to have not only their checking but their debit card linked to a local presence, particularly if there's a problem," Mr. Bowen said.
Some consumers who get an ACH debit card from a third party might be confused about whom to contact if they have questions or concerns about a transaction, he said.
"It will be interesting to see how the customer service, fraud, security issues play out. Are you going to get two different companies pointing at the other, with the customer left in the middle with nowhere to go? That's where we like to own as much of the business, because then the customer knows who to talk to when things go sideways."
James A. Hanisch, the executive vice president of corporate development and chief information officer for the credit union network and servicing company Co-op Financial Services, said it had discussed the concept of an ACH debit card about 10 years ago, but the idea "didn't get a lot of traction," because it was "fairly operationally complex behind the scenes."
The fact that the issuer lacks knowledge and control over customers' banking accounts underlies several challenges the new cards will face.
For one thing, "authorization holds" applied in advance of the transactions would require a different mechanism than those applied on traditional credit and debit accounts.
Mr. Hanisch said that the process of authorizing and then reconciling the holds would be more complicated and more likely to lead to errors.
(HSBC and Capital One said they would bear the risk for transactions that are made with their cards.)
The lack of control also would affect direct transaction authorization, as commonly occurs in standard debit transactions.
Dennis Racine, the vice president of bank card services for Chittenden, said this could lead to both erroneous approvals and unfair denials.
"I would be concerned that my higher-dollar-amount transactions may be denied," Mr. Racine said, because the issuer "doesn't know what I have in my account, and they are authorizing on an arbitrary limit that may be lower than my balance."
According to Mr. Eckert, HSBC sees this risk as no higher than that with paper checks. Under the current debit authorization process, "very frequently banks will extend overdraft protection knowing full well there are no funds in the account."
Financial companies typically use a variety of algorithms to determine the likelihood that a transaction will be valid, and HSBC will use the same techniques for transactions on its ACH-debit card, he said. "Based on past usage and predictive usage, we can reasonably assure ourselves of the funds amount."
HSBC has developed a cobranded ACH-debit card with the drugstore company CVS Corp., using the Tempo Payments Inc. network. Tempo, of San Mateo, Calif., carries transaction data from the merchants' processors to HSBC, which creates an ACH debit that can be delivered to any financial company.
Tempo has been pushing the concept since 2000, when the company was known as Debitman Card Inc.
HSBC and CVS plan to begin testing the ExtraCare Plus card in August. It will be offered at 141 CVS stores in the Indianapolis area for six months, and a national rollout could follow starting next year. About 200,000 merchant locations currently accept Tempo cards.
The ExtraCare Plus card is very similar to an ACH-debit already available from Capital One, which routes payment data across MasterCard Inc.'s network to the issuer, which then generates ACH debits. Those cards carry MasterCard's logo and can be used at any merchant that accepts its products.
