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The decoupled-debit card does not come risk-free to issuers.
With regular debit cards, the issuer knows how much is in the customer's account and can block transactions that exceed that amount. In decoupled-debit scenarios, however, the issuer lacks knowledge of the assets in cardholders' accounts, so cardholders ostensibly could spend more than they have on deposit.
The issuer, therefore, assumes the risk of such overdrafts. Yet those companies that have entered the decoupled-debit market say it is a risk they are willing and able to handle.
"Risk management has been a cornerstone of Capital One's success as a lender," says Pam Girardo, a spokesperson for Capital One Financial Corp., which launched a decoupled-debit pilot last spring. "The unique nature of this product required that we spend a lot of time and energy understanding risk in the debit space, which led to the development of a proprietary model for this product."
Daniel Eckert, head of venture, acquisition and development at HSBC Financial, echoes that sentiment, adding his institution believes the media and others have overstated the risk potential.
"HSBC's program does guarantee the payment to the retailer," Eckert says. "We do bear that risk of loss. But we have a high degree of comfort in managing and controlling risks."
Mike Grossman, CEO of Tempo Payments Inc., which is partnering with HSBC in a decoupled-debit card pilot, says the risk does not stand in the way of banks making a profit on decoupled debit. He believes issuers can deal with risk in a number of ways besides employing the metrics of risk analysis.
In its past operation of decoupled debit, says Grossman, the company charged cardholders $20 when they made purchases with the card without having the funds to cover the transactions in their checking accounts.
Issuers could limit the amount cardholders may spend using decoupled cards, or they might devise ways to restrict access to the cardholder's bank account at the point of sale if there were insufficient funds to support the debit transaction.
To do so, according to Manjot Sohi, leader of the banking practice at Capgemini North America, issuers might have to interface with the customer's bank account by putting out a request for inquiry or by putting in a request that the account be immediately debited at the point of sale.
Sohi says if decoupled debit becomes commoditized, automated clearinghouse purchases might require some type of standardization or analysis to ensure the system can support the higher transaction volumes.
"As the product matures, these kinds of issues might come to the forefront," Sohi speculates. CP
