LAS VEGAS–The same criteria financial institutions used to determine a debit network partnership before the Durbin amendment still should apply in its aftermath, network executives agreed here Nov. 2 at SourceMedia’s annual ATM, Debit & Prepaid forum.
New debit-routing requirements go into effect April 1. The final rules from the Federal Reserve Board, as mandated under Durbin, require debit cards to carry brands from at least two PIN-debit networks.
Price remains the top determining issue when banks choose a network, noted Kimberly Lawrence, head of consumer products strategy and execution at Visa Inc. But to use price as the only factor is shortsighted, she told attendees at the conference’s opening session.
“We’re certainly encouraging banks to look at the full suite of products,” Lawrence said.
Indeed, the electronic funds transfer networks agree this is the case as they compete with each other securing bank partnerships.
Dave Schneider, president of Discover Financial Services’ Pulse network, challenged banks to examine each networks’ quality of service and whether they support the bank’s business goals.
“Our approach to dealing with Durbin as a whole is about how do we understand the problems and the challenges that our issuers are facing and how to serve them,” Schneider said. “It’s about being in a position to provide services as efficiently as possible.”
That is now even more important as banks will earn less revenue on debit card transactions, he added. The Fed’s final rate ruling (also mandated under the Durbin amendment) that took effect Oct. 1 essentially cut in half the amount debit card issuers receive in debit card interchange, or to about 21 cents to 24 cents per transaction on average.
Network executives agreed product and service innovation will help more than ever to differentiate their operations.
“Your network needs to be able to help you with tomorrow’s issues,” said Leland Englebardt, group head for global network products at MasterCard Worldwide. “Does your partner have experience with mobile, chip card, value-added services and a history of delivering those?”
Indeed, just about every major network is readying for mobile payments, which executives believe will only drive more debit transactions to their respective companies.
Visa is investing in the mobile market through such initiatives as “Click to Buy,” “Touch to Buy” and “Tap to Buy.” The brand this month plans to roll out an improved “Click to Buy” service, which consumers may use on mobile devices or home computers using only a user name and password at checkout. It also will add new loyalty features to the program next year.
MasterCard is aligned with Google Inc.’s wallet service. First Data Corp., which owns the Star network, is the trusted service manager for Google Wallet. Discover is partnered with the Isis wallet.
Star also is presenting issuers with its own alternative to EMV chip-and-PIN technology.
Its CertiFlash debit card fraud-protection product uses a contactless chip to produce a unique, one-time card number to authorize point-of-sale transactions. The one-time numbers replace authentic card-account information to complete a portion of the transaction process. Star reverts the one-time number back into the actual card number at its switch before sending the transaction to the issuer for authorization.
Fremont Bank is set to issue CertiFlash debit cards in the next several months. Star also is working to leverage CertiFlash as a payment option for e-commerce, the network told PaymentsSource in September.
The networks believe the new Durbin rules will not affect long-term consumer debit card use because the payment option is so ingrained in their spending behavior.
Kevin Barry, Star general manager, anticipates more PIN-debit volume as merchants attempt to push more secure transactions. But that creates a challenge for banks with customers accustomed to signature-debit to earn rewards, he said.
“Fraud is something that everyone should be actively looking to push out of the system,” he said.
The affect Durbin will have on revenue remains unclear, the executives agreed.
“Regulations rarely accomplish what they are intended to accomplish,” Discover’s Schneider said. “We will see this play out over an extended period of time.”
It might take 12 months to 18 months to determine Durbin’s true impact, he said. Issuers and networks will experience a “trial-and-error period” to determine how best to offset lost interchange revenue.
The major banks already have erred in this sense, as many have backed down from charging customers fees for debit card use.
MasterCard’s Englebardt reminded attendees banks only are a little over a month into what he deemed government price-fixing.
“There is a tremendous amount that is not clear [about revenue going forward],” he said.
