Interest In Debit-Credit Combo Cards Grows, But Market Growth Slow

The debit card likely will not go the way of the paper check, but its days as a single-purpose product are looking increasingly numbered.

Marrying debit and credit card products is becoming more enticing to banks, which are desperate to limit and, hopefully, replace lost revenue to new debit-interchange restrictions.

While still in the nascent phase, payments experts say more banks are likely to follow in the footsteps of Fifth Third Bancorp, which on Aug. 24 announced a hybrid debit-credit card it is marketing mainly to existing customers.

“We’re going to see more stuff like this,” says Eric Grover, the principal of payments consulting firm Intrepid Ventures in Minden, Nev.

Caps on the amount of fees that issuers generate from debit card purchases are set to take effect in October, reducing revenue for large banks by as much as $6.6 billion annually, according to a report from Javelin Strategy and Research. The Federal Reserve Board’s debit-fee caps, stemming from the Durbin amendment to the Dodd-Frank Act, are intended to lower the costs merchants pay to accept debit cards (see story).

The Fed in June decided to cap both PIN and signature-debit interchange at 21 cents per transaction, though it gave banks some leeway to charge more if they meet certain fraud-prevention standards (see story).

Fifth Third recently said its quarterly debit interchange revenue would shrink by 50%, to $30 million, barring mitigation efforts it is planning.

The Cincinnati-based banking company is looking to generate new revenue, but the interchange caps were not the driving factor in introducing its new Duo Card, says Jon Groch, Fifth Third Bank senior vice president and director of bankcard services. Rather, the company sees an opportunity to strengthen relationships with customers by making card use simpler.

“Really, the Duo Card was designed to meet the needs of our customers, and it really is based on our research,” Groch says, adding the product is not “a reflection of … the Durbin amendment.”

Fifth Third is not the only bank looking at offering multipurpose cards.

Total System Services Inc., a Columbus, Ga.-based payments processor to merchants and banks, has been marketing its TSYS Hybrid card to banks that includes a line of credit and the ability for a consumer to attach up to five demand deposit accounts, each from different financial institutions if desired (see story). Two U.S. banks are testing the product, a TSYS spokesperson says.

Online payday lender Think Finance last year developed the Elastic card, a prepaid debit card with a line of credit of up to $500, that rewards consumers with lower fees for exhibiting good behavior, such as making payments on time. But the debit-credit combo has not been an easy sell to both banks and regulators (see story).

Dynamics Inc., a Pittsburgh-based card company, has several banks testing its high-tech plastic cards that include buttons a user can press to select which account to make a purchase with (see story). Citigroup is testing a version that lets customers use the card to pay with a line of credit or their rewards points.

“Durbin has increased competition among [banks] for credit products and for differentiated features,” says Jeff Mullen, Dynamics chief executive.

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