Financial institutions rely on debit cards to create consumer loyalty and engagement, and the product's business case hasn't been diminished by rising costs and regulatory uncertainty.
There will be an estimated 56 billion debit transactions in the U.S. during 2013, and that volume of business creates many problems so much so that 10% of the calls that Bank of America receives into its call center are for debit-related issues, said Ben Stewart, a B of A senior vice president and debit executive.
"The costs to run the program are substantial. It's not just about fraud, or authorization and clearing costs," Stewart said during a panel discussion at PaymentsSource's ATM, Debit and Prepaid Forum, ongoing this week in Las Vegas.
Debit issuers are focused on finding ways to reduce their costs and increase transaction volume at a time when they are urged to shift to EMV-chip cards despite unresolved issues surrounding the Durbin amendment's debit-routing rule.
Bank of America reissues 20 million debit cards to existing customers every year, and Stewart said the bank is developing self-service tools to reduce the costs associated with debit-related problems. Self-service channels offer the opportunity to lower costs and it's "where customers are going anyway," he said.
Banks can further reduce their debit costs by addressing the pain points that result in consumers contacting call centers or going into a branch, added Cecilia Frew, senior vice president of debit and prepaid products and customer rewards at PNC Bank.
"We believe it's not only a good customer service play, but a good cost play as well," she said.
Most debit card issuers receive their consumers' entire debit expenditures, "unlike credit, where a consumer may have three or four cards," Frew said. The goal for increasing debit transactions is getting consumers to use their cards for smaller purchases that they currently pay for with cash.
These small-ticket transactions are becoming more convenient for consumers because many are moving toward a "swipe and go, no sig or PIN" model, explained Ed Kadletz, executive vice president and head of debit and prepaid cards at Wells Fargo Bank.
The uncertainty created by legal challenges to the Federal Reserve Board's implementation of the Durbin Amendment is hindering plans for the migration to the EMV-chip card standard, the panelists said. Institutions are reluctant to issue EMV debit cards to consumers, in part because the networks haven't yet agreed on a common application identifier for routing debit transactions under the Durbin rule.
"We haven't made a commitment one way or another," Stewart said about issuing EMV debit cards. "I think the thing that's holding us back is the common debit solution."
Still, some banks are moving forward with issuing EMV-chip cards in a limited capacity. Wells Fargo issues EMV debit cards to the segment of its 40 million debit card customers that regularly travel abroad.
"The reason we will be issuing is because our customers are telling us they're having more acceptance issues outside of the U.S.," Kadletz said.
For its non-EMV debit cards, Wells Fargo offers instant-issuance at its branches. Rather than installing embossing and encoding hardware in each of its 6,000 locations, Wells Fargo keeps a supply of nonpersonalized, embossed plastic cards on hand so consumers can open a new checking account and walk out of the branch with a functioning card. Later, customers are mailed a permanent, personalized card that they can customize with unique photos.
"The benefit of that early usage more than pays for the cost of having that inventory in the stores," Kadletz said.
But he added that the move to EMV debit cards could disrupt that process. "As EMV comes in, that's a whole different ballgame as to whether you can do EMV instant-issuance."