Banks are missing out on major opportunities
to improve the profitability of their debit card programmes,
according to a report from global payment processors First

The multi-country survey, Worldwide
Opportunities for Debit
found that banks must apply more
energy and innovation to developing their debit card programmes, to
make debit usage a more valuable proposition for themselves and
their cardholders.

In addition, the First Data report recommends
growth strategies banks should adopt and warns of impending threats
to their ability to take full advantage of the opportunity debit
programmes represent.

In the emerging markets, the study concluded
that banks need a more vigorous approach to both customer education
and co-operation with retailers to increase debit card usage,
especially at the point of sale.

It added that real opportunities exist to
improve the profitability of debit programmes through the use of
new payment channels such as mobile, prepaid, contactless and
e-commerce. These are particularly relevant to the youth

The survey found little evidence that banks
are using the best practices developed in support of credit cards
to drive debit growth and performance. Banks that are doing so are
realising success.

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“Banks can capitalise on consumers’ move to
debit if they develop a sophisticated understanding of the
economics of their debit offerings and put the same innovative
energy behind debit as they do behind credit,” said Paul Stanley,
senior vice-president Financial Services, EMEA, First Data.

“However, our study warns that fraud and
increased regulation could dampen the debit experience for both
banks and their customers.”

Other key findings included:

  • The Need to Understand Debit Economics

Bundling debit offerings with other products
makes it very difficult for banks to truly understand the economics
of their debit programmes. Greater awareness of the relationship
between channels and products, the alignment of credit and debit
strategies and improved account packaging are all essential to
driving profitable consumer behaviour.

Banks that have outsourced their debit
processing appear to have the clearest view of debit costs and
revenues and, therefore, the best opportunity to focus their
efforts on driving profitable growth.

  • Maximising Debit Profitability

Segmentation and rewards programmes will become more important
to promote customer loyalty but are likely to be profitable only
when integrated with other retail banking offers or in partnership
with retailers and other third parties.

Increasing debit usage at the point of sale is a clear priority
for banks in Europe, and in emerging markets where ATM withdrawals
can account for up to 90 percent of debit card transactions.

In India, banks reported that a one-percent
increase in debit activation can drive a 20-percent increase in
transaction volumes, demonstrating the potential upside for

  • The Impact of Regulation

Regulation of debit usage is increasing in
nearly all of the markets included in the study and is challenging
current debit business models.  

  • Managing Fraud

Tight margins on debit mean fraud levels can
make the difference between profit and loss. ‘Chip and PIN’ is an
effective weapon against fraud for card-present transactions,
although limited merchant acceptance undermines the business case
in the US.

The report, published on 15 July, incorporates
data from interviews of 34 banks across a mix of 10 mature and
emerging markets around the world.