Decoupled Debit

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8 November 2010

Winston Churchill may have been referring to Payment systems in the US when he said:

It is a riddle, wrapped in a mystery, inside an enigma

The macro economic impacts of the recent US card legislation portend substantial business change for Visa and Mastercard. The US debit card market is soon to resemble Australia and Canada with other countries soon to follow (See China and India). Retail Payments over the next 20 years are likely to morph substantially from their current issuer/network dominance. In addition to regulatory changes, new technologies and new value networks are creating a new competitive dynamic which will bring more than $5-10B in capital investment into the payments within the next 2-3 years.

My wife’s visit to Target this week prompted a revisit to the decoupled debit space. Target’s value proposition: hand me your check and sign a release form, you will then receive a RedCard linked to your checking account and good for 5% off all future purchases. Will we see more of this type of value proposition (which Durbin enables through its steering provision)?

From TSYS

Decoupled debit is interesting for several reasons:

  1. The issuer is not required to be a bank in order to offer an account and issue a card
  2. The products can exist as private label products or co-branded products
  3. The products can potentially build significant loyalty
  4. The products reduce costs when delivered and managed correctly
  5. The products leverage the existing payments infrastructure and standards

Retail Business Case

Retailers have a different mindset when it comes to alternative or decoupled products because they are stakeholders in the product, not just the transaction. They look at the product as a way to help them:

  • Reduce cost of payments
  • Build loyalty
  • Offer merchant-designed promotions
  • Drive more store sales
  • Segment and target customer groups
  • Leverage ‘spend information’

For those outside the US I recommend reading:

6 thoughts on “Decoupled Debit”

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  6. You have asked a very good question, and I intned to try as much as possible to provide answer based on my knowledge. I would like to first say that a credit card is a great financial tool. It can be more convenient to use and carry than cash, and it offers valuable consumer protections under federal law. At the same time, it’s a big responsibility. If you don’t use it carefully, you may owe more than you can repay, damage your credit rating and create credit problems for yourself that can be difficult to fix.There is absolutely nothing wrong in paying off your credit card bills in full each month. If, however, you are unable to do so, then I would strongly suggest you don’t carry over to the next month more than 25% of your credit limit. Even if you pay only the minimum amount, your credit card company will still report the balance on your card each month to the credit bureau(s).It is advisable to use your debit card more often than your credit card(s). This will greatly reduce the temptation of charging your credit card(s) in such a manner that could become so difficult in paying back. Should this be allowed to happen, then, the credit score would be affected greatly.On the other hand, if you don’t use your credit card, no activity would be reported to the credit bureau(s) and that would not earn you any point. Above all, use your credit responsibly and watch your credit score climb the ladder.Good luck as you build your credit score! I was once in your shoes.Derrick

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