[IMGCAP(1)]

Capital One Financial Corp.'s conclusion of two cobranded decoupled debit card programs in May was initially viewed by many as a sign that the McLean, Va., company had lost interest in this emerging market.

That turned out to be a misreading of Capital One's aspirations. Late last month it began soliciting customers through e-mail for another decoupled program — a sign it is continuing to tinker with the formula.

Unlike the programs with two regional merchants, this test targets customers directly nationwide. The card being offered carries an annual fee of $19.95, and users earn two reward points for every dollar spent. Capital One says it has several other programs under way as it fine-tunes its research efforts to determine how to position decoupled debit cards.

"We have a broad, multifaceted, and comprehensive decoupled debit learning agenda that is ongoing," Pam Girardo, Capital One spokeswoman, said in an e-mail. "We're testing a variety of things at the moment."

The tests that ended in May with the Altoona, Pa., convenience store chain Sheetz Inc. and the Richmond, Va., grocery chain Ukrop's Super Markets Inc. were a "very small component of a much larger, ongoing decoupled debit learning agenda."

Michael S. Grossman, the chief executive of Tempo Payments Inc., which also offers decoupled debit cards, said that the model is still evolving, and that eventually there will be a wide variety of products available, just as credit card issuers now have multiple products aimed at different customers.

"What Capital One seems to be doing is testing a lot of things and trying to figure out what works and what works well," he said. "They are probably testing an annual fee" to see how people respond. "I expect that fees will often be charged" for decoupled debit cards.

The solicitation was first reported last week on the credit union blog EverythingCU.com, which said the offer was sent late last month.

Ms. Girardo said this is not the first time Capital One has offered decoupled debit nationally, nor is it the company's first foray into decoupled debit without a cobranding partner.

James A. Hanisch, an executive vice president at Co-op Financial Services, said that he knows several people who received e-mail solicitations from Capital One recently, and that the company appears to be stepping up its efforts to promote decoupled debit cards.

The cards have proven contentious since word of Capital One's program emerged last year, because they can be issued to any consumer, even those who do not have a demand deposit account with the issuer. Many bankers have expressed concern that they would lose interchange revenue if their customers began using the cards.

Viveca Y. Ware, the Independent Community Bankers of America's director of payments policy, said the offer could be an effort by Capital One to provide more banking services nationwide.

"It opens the door for Capital One to market and ultimately capture the checking account relationship," she said.

Capital One, which once focused solely on issuing credit cards, has expanded into other banking activities in recent years, acquiring Hibernia Corp. of New Orleans in 2005 and North Fork Bancorp of Melville, N.Y., a year later.

"I believe they are focused on a single approach — to expand the Capital One footprint through the debit card," Ms. Ware said, but she doubted consumers would want to pay a fee for a card they get for free now. "That's certainly an untested model. Ultimately, the Capital One rewards program has to be so compelling that the consumer will be willing to pay a $20 fee."

Mr. Hanisch agreed that Capital One could go after deposit accounts, but he predicted that decoupled debit would face operational difficulties.

Financial institutions could defend themselves by charging fees for the automated clearing house charges to customers' accounts, offering their own rewards programs, or both, he said.

"A number of our credit unions are considering rewards programs that could compete effectively against the Cap One offering," Mr. Hanisch said. "I think it's fairly easily defended."

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry