Debit card strategy dominated the
agenda of this year’s Cards & Payments Europe Conference. James
Ratcliff looks back at the days discussions and finds that there
are clear ways forward for banks looking to increase revenues from
current accounts


Graphic showing 'cash addicts' and 'debit lovers' payment behaviourFrankfurt
– the centre of European finance and the spiritual home of the Euro
– played host to this year’s Cards & Payments Europe
conference. And the town that has been the backdrop for some the
banking world’s boldest moves saw the European payments industry
gather to discuss the significant changes the industry is

On the agenda this year were mobile payments,
e-commerce, and social media listening. In addition, speakers
looked at how to drive profits from debit as more consumers turn
away from credit.

On this subject Luke Olbrich, head of debit
for MasterCard Europe, encouraged banks to revisit the way they
look at their portfolios. “We need to look beyond the device, and
beyond the account,” he said. “Credit, debit, prepaid, deferred
debit, decoupled debit – the channel to access the account needs to
be flexible. We need to offer a more adaptable set of platforms
that will allow bank customers to choose exactly what it is they
want to use.”

The economic crisis changed the needs of both
banks and consumers. According to Olbrich, MasterCard responded to
this change by commissioning a number of consumer surveys that
continue to inform their product development work.

“When we undertook these consumer insight
studies we focused on speaking to consumers and understanding how
their needs have changed – what their attitudes are towards mobile
and towards the different channels,” he said.

The results of those studies, he explained,
highlight four areas in which consumers expressed concern.


Consumer concerns

Unsurprisingly, security and fraud was at the
top of the list of consumer concerns. “We are not in a remarkably
glamorous industry unfortunately,” Olbrich said. When people
think about payments – if they think about payments at all – they
want their money to be safe. This is one area that we as an
industry have not sufficiently communicated.”

And it is communication that’s key here,
particularly in Europe, where EMV implementation has seen card
fraud levels plummet. “But if you look at consumer attitudes, and
read the mainstream media, that is not clear,” he said.

The other issue very high on the consumer’s
agenda, when it comes to payments is, of course, the convenience

Naturally, debit cards create an easy way of
accessing bank accounts but a step-change still needs to be made
when it comes to making debit “the new cash”, said Olbrich.

“People want the ubiquity of cash – they want
to know cards are accepted everywhere. But many merchants still do
not offer card payments, when they could.”

There are a number of possible reasons for
this. “It could be a problem of location: transit systems, for
instance, or it could be problems around speed of through-put.
There is also the problem of how to process low-value payments

While those are all problems that mobile
payments and NFC professes to solve for retailers, it is not an
easy sell. Retailers still remain to be convinced that investment
at the point of sale will see solid returns. So what would drive
retailers to invest? One answer is customer information – marketing
and loyalty – the other is consumer demand. We do not always have
to be led by the consumer, said Olbrich.

“We are in a push industry to a great extent.
If someone had asked me 20 years ago if I would be interested in
buying good through a television, I would have said ‘no’.

“Now the technology is in place, we are able
to present the consumer with a mobile payments capability. And the
consumer will start to look at their phones differently.”


Improving profitability

Debit card portfolios is a particular area
banks are being encouraged to look at very differently. Return on
investment in debit is hard to gauge but banks’ credit-wary
customers are encouraging banks to build on their debit offer. But
where are the profits?

Francesco Scanera director of international
business at Bluerock Consulting spent some time looking at the
specific area of driving profit from debit. While the profit is not
a clear as it is on credit portfolios, there is still a clear
revenue stream.

“You cannot consider income streams simply as
revenue from product fees and interchange alone,” he said. “When
you are looking at profits from debit, you need to consider the
fact that it encourages higher customer deposits.

“It has been shown that account balances are
generally larger where the account holder is using debit cards over
cash. The other thing to consider when looking at debit in
comparison to credit is that a debit offering targets a bank’s
entire base of account holders, unlike credit.”

In addition, even when carefully distributed
credit has obvious risk and insolvency issues that debit does not.
And those factors, while harder to quantify, do add up to real

Olbrich concurred and added: ”We try and get
banks to invest in debit and we have a business model for banks
that clearly shows the average balance on a current account
increasing where ATM transactions are replaced by POS

“The fact is that debit card users’ money
stays in the bank longer – and that’s right to the banks’ bottom
lines in terms of interest income.”

So the value of debit needs to be judged by
the bank account’s profitability, not that of the cards themselves.
And when multiplied across many current accounts, that income is
very significant. “It’s not just about the six euro cents the bank
earns per transaction,” said Olbrich.


Loyalty counts

Encouraging increased use of debit cards at
the point of sale, as opposed to ATM usage is something that all
the morning speakers agreed was important to portfolio revenues.
But achieving this is not easy.

Having already heard that margins on debit are
small and tricky to define, finding space to add value for customer
(thereby increasing use) is itself difficult to justify.

Loyalty programmes are certainly not easy to
implement on debit portfolios, but Banco Posta, the banking
division of the Italian post office (Poste Italiane), is one
organisation that has looked at this area very creatively.

Luca Leoni, head of market intelligence for
Poste Italiane used his afternoon session to outline the innovative
approach to loyalty that his organisation is implementing across
both debit and prepaid portfolios.

“We decided that a traditional points-based
reward scheme was not showing good results,” he said. “So we chose
to offer cash back. Our problem, however, was funding the cost of
that cashback.”

The Italian bank then entered into lengthy
negotiations with retailers. They emphasised the importance of
loyalty in terms of customer relationship management and marketing,
and eventually retailers began to agree to funding the cash back

“We have now developed a network of 20,000
retailers, all of which were prepared to fund the cost of the
loyalty programme as a way of building their relationship with

The main thing that convinced such a large
number of retailers to join the scheme, Leoni said, was Banco
Posta’s very large customer base.

“It was not easy to convince retailers that
they would see a return on their investment,” he said. “But the key
was the fact that we brought 13.5m cardholders to the table.

“Every loyalty scheme needs a large amount of
regular spend to succeed, and around 60 percent of card activity
comes from everyday spending.”

And this brings us back to debit. High volumes
of everyday spend has, Banco Posta has proven, a significant value
to retailers. Admittedly, there are few banking markets quite like
Italy, but there are clearly opportunities for banks with large
debit portfolios to approach retailers to drive profit from card
usage, and see the increased interest income that comes from larger
volumes of POS transactions.

Collage showing photographs taken at the Cards & Payments Europe Conference 2011