The whole idea of debit cards becoming more of a profit center has evolved as banks have been searching for more avenues of non-interest income. The natural tie-in was this plastic card already in the customer's wallet. Banks started asking themselves: "What added value can I place on this card that would bring me opportunity for fee income?"

The answer was point of sale debit. If you deliver value - extra services - the customers are willing to pay for it. For example, we did a study that showed that 60% of our Visa Debit issuers - we have over 800 - charge either a periodic or a transaction fee for the use of that card.

Banks should not underprice these products. If you look at it from the customer's point of view, this is not just a debit card, but an allover banking card that allows them to conduct their banking business from a wide variety of places, not just the bank branch.

The value-added services that are now available with debit cards bring increased functionality and convenience that customers are willing to pay more for. Financial institutions have the beginning of an opportunity to assess transactions fees and/or annual fees, which can be a great source of profit. Institutions have to be careful on how to price the card because they don't want to discourage customers from using electronic funds transfer, especially if it is a cheaper delivery method.

In the beginning, many financial institutions anticipated reduced costs for tellers and brick and mortar, and they haven't seen those cost reductions come through. But I'm sure as we move down this road, and customers can conduct business at all these other delivery points, there will be less of a need to construct new branches, and those cost savings will come through.

We've got two types of debit cards and one has much more profit opportunity than the other. We issue a plain-vanilla MAC card, as well as a Global Access Card, which is a Visa debit card. The profit opportunity is much bigger for the Global Access Card since it is accepted at any merchant that accepts a Visa credit card. For every $100 in purchases made by our Global Access Card customers, we get a fee of about $1.30.

Another area for profit opportunity will grow as the industry actively sells debit cards for use in supermarkets, dry cleaners, and other merchants that generally accepted checks in the past. That opens a much broader customer base for the merchant, gives us more fee income from these debit transactions, and cuts down on the number of checks that come into our item processing area, thus reducing our costs there.

In the past 10 years, debit cards have become an integral part of retail banking delivery services simply because they benefit banks' best customers: retail depositors. Debit cards are so inextricably tied to the core deposit business that profitability opportunities revolve around their impact on banks' overall retail customer relationships.

Increasing the usefulness and value of debit cards adds to the amount of business banks can do with customers and strengthens the total customer relationship. And strong customer relationships generate solid opportunities for profits. These profits come in many forms, including increased deposits, lower delivery costs, additional ATM and POS transaction and service fees, and other income sources related to the value provided as part of the customer relationship enhanced by the debit card.

We see two profit opportunities.

We have a lot of debit card customers. We have been very aggressive in pushing this product. We try not to issue debit cards as a stand-alone product, but along with checking accounts. We see debit cards as a value-added component of checking, and about 80% of our checking account holders are also debit card holders. This gives us improved customer retention. Also, new customers are attracted to our bank because of this added service. This allows us to price our services higher than others in our market because our customers perceive that they are getting more than just a regular checking account.

Secondly, although we think that over the long haul this will slowly decline, another area for profit is in the interchange fees.

The two major areas for profit are interchange income and also the reduction in back-office expenses in the check processing area.

But more importantly, the debit card allows our customers easy, convenient access to their funds anywhere in the world. Our debit card is a combination Maestro-MasterCard, so our customers can use it at any of the 10 million MasterCard merchant locations worldwide. That allows us to open more accounts. We implemented our debit card 2 1/2 months ago and we already have 28,000 debit card holders.

The value of debit cards comes from broadening the utility of the ATM card. Customers have limited need to get cash from bank walls. But now with more places accepting debit cards, consumers are using them more, and are more willing to pay for the service. Debit cards appeal to people who want to purchase goods without writing checks and they appeal to sophisticated financial customers. And, as with any other product, customers will pay for value.

There is definitely money to be made. There are about 90 billion transactions per year now being paid by cash or check that could be made through debit cards.

As for profit opportunities, interchange income is one source - the fee income that comes from the merchants to process these transactions. There are also profit opportunities on the customer side. Banks can either charge a transaction fee of 25 [cents] or 50 [cents] per transaction or, depending on how you price out your relationship retail products, an additional annual or monthly fee. You want to give your customer the best utility at the best price you can get.

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