The rising popularity of debit card
payments in the US is good news for banks that profit from the
interchange generated by increasing numbers of transactions, and
those that are also benefiting from an uplift in current account
sales, but an innovative new debit product from Capital One
threatens to upset the status quo by severing the link
between a cardholder’s debit card and current account.

Capital One is launching a decoupled debit card – a debit card
that can be linked to any bank account, with transactions being
routed across the automated clearing house (ACH) network. The card,
which comes in both PIN and signature formats, will be marketed to
anyone with a current account at any bank in the US, not just
Capital One accountholders. Also included is a rewards programme,
which Capital One claims offers better value for cardholders than
standard debit rewards programmes.

Capital One, which is no stranger to leading-edge marketing, has
been looking for a way to separate debit cards from current
accounts while at the same time securing customer relationships. It
believes it has a winning proposition in trying to elevate debit
marketing in the US in order to wrest control of debit from banks.
The new product should also help strengthen cardholders’ loyalty to
merchants due to the level of rewards on offer, and help merchants
to gain incremental sales and to increase revenue.

Currently, the card is available only to selected Capital One
credit cardholders but the company plans to make it widely
available in 2008. Capital One credit cardholders who also have the
new ACH debit card will be able to combine rewards earned from the
two products and receive the same level of points or cashback
regardless of which card they use for transactions. Industry
analysts have estimated that the card will return $0.46 in rewards
value to the consumer per $100 of spending, compared with around
$0.10 for some other debit cards.

The cards will carry the MasterCard logo, enabling them to be
used at any merchant that accepts MasterCard cards. MasterCard then
routes the transaction information to Capital One, which generates
ACH debits to the cardholder’s bank account. The tie-up with
MasterCard eliminates the obstacle of merchant reluctance to accept
ACH debit cards, which has proved problematic when other issuers
have tried to promote such cards.

The new card could also help MasterCard to steal debit market
share away from Visa USA, which is the dominant debit payment
network in the US.

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The only major players in the co-branded ACH debit field are
payments network provider Tempo and HSBC, which linked up earlier
this year to launch a merchant-based debit card partnership.
Tempo’s cards are accepted at 200,000 merchant outlets across the
US. However, Capital One’s greater pool of resources and existing
merchant ties should help it to establish nationwide merchant
co-brand partnerships and to elevate it to the top of the US debit

According to US research consultancy Aite Group, Capital One’s
new product will mark a breakthrough in US card issuing. Aite rates
the product’s chances of success as “very high” and considers the
reward proposition to be a “key competitive force”.


Reward value