Debit Card in Peril?

The biggest story of the week has largely gone unreported. Bank of America (BAC) has taken a $10.3B goodwill impairment charge in 3Q. What does this mean for Visa? Not Good News.

27 October 2010

The biggest story of the week has largely gone unreported. Bank of America (BAC) has taken a $10.3B goodwill impairment charge in 3Q.

The Merchant Payments Coalition responded to the impairment charge (reference above)

“With a Federal Reserve decision on debit interchange rates not expected until mid-2011, today’s claims by Bank of America dramatically overstate reality and represent a feeble attempt to divert attention from its mortgage foreclosure problems,” said Doug Kantor, counsel to the Merchants Payments Coalition.

In the 8-K, Bank of America said it plans to take (ref The Street)

 “a number of actions that would mitigate some of the impact when the laws and regulations become effective,” but it didn’t provide details about what those actions might be.

Will write more later, but I can assure you BAC is looking for debit alternatives. Given their size, most anticipate a new product driven from both their retail and global card team (including merchant services). So in addition to AT&T/Discover, we will now have another major bank led team developing a new payment product with a multi billion dollar incentive.

What does this mean for MA and Visa? Not good news for US growth.

Related Article

P2P on Mobile – CashEdge POP Money

Just announced at Finovate today

http://sev.prnewswire.com/banking-financial-services/20090929/PH8333229092009-1.html

I know the folks at CE very well. Fantastic organization.. they excel at both the Sexy front end as well as the messy back end (risk/fraud) of payments. Their new POP Money service is rock solid and could give FSIs a strong contender in competing w/ PayPal in Sending money to any phone number or e-mail address.

CashEdge is a “Bank Friendly” service provider in that all of their services are white labled for banks. Few people know that if you use Wachovia, Citi, or Bank of America today, to transfer money outside of the bank, you are using a CashEdge Service. In 2004 I selected CE (Wachovia) because they provided a higher quality service at a lower price point then what I could build  internally (fully loaded). Many eCommerce teams only focus on the User Interface and top level design when assessing the cost of delivering P2P payments.  However it is risk and fraud management where you will find the true costs of “payments” to the organization. 

This new POP service will allow banks to create a revenue generating service, and take back consumer mindshare from PayPal.  Existing CE customer have a tremendous advantage in enabling this service, particularly given the current resource constraints within bank IT.

Many large banks are just beginning to offer A2A transfers (accounts that I own across FSIs). Wells just made this service available on a pilot in June.. Chase has it, but it is buried deep within the online functionality. There will be a big first mover advantage here, and my informed opinion is that Bank of America will be the the leader… or should I say stay the leader in payments.

Move over PayPal.