BALTIMORE–The Durbin amendment to the Dodd-Frank law so far has had a positive effect on MasterCard Worldwide’s debit card market share, according to a top executive for the network.
Moreover, though some banks may view debit cards as being less profitable under new Federal Reserve rules that in October essentially halved the interchange merchant acquirers pay issuers, debit remains a powerful growth tool for banks that market it effectively, Carlos Menendez, MasterCard’s group executive, global debit, said at an April 30 presentation here at NACHA’s Payment 2012 conference.
The Fed’s rate cut might have affected issuers adversely, but another provision of the Durbin amendment that went into effect April 1 has been a boon for MasterCard, Menendez said. It requires issuers to provide merchants with the choice of at least two unaffiliated point-of-sale networks for processing debit card payments.
MasterCard also owns the international Maestro POS PIN-debit network, whose mark U.S. issuers early on included on their debit cards as a last resort in case the cardholder was outside the main regional debit PIN-debit network’s market. More recently, MasterCard and Visa Inc. negotiated exclusive deals with issuers to use only their debit brands, which the new Durbin rules no longer allow. Visa negotiated most of those exclusive deals, with issuers tying Visa’s Interlink POS PIN-debit debit brand to their Visa check cards.
“Durbin has been an opportunity for us in the sense of gaining market share,” Menendez explained to attendees at a session focusing on bank strategies to increase debit card volume in a sluggish economy.
Declining to specify which banks recently have added Maestro to the back of their cards to satisfy the new network-routing rules, Menendez said the shift in card transactions routed through the network because of Durbin has been “significant.”
MasterCard plans to announce its first-quarter earnings May 2.
Despite the Maestro gains, most of MasterCard’s overall debit growth continues to come from displacing cash transactions, Menendez said.
Though the reduction in debit-interchange revenue caused many issuers to eliminate debit rewards programs, debit remains one of the most-powerful tools for banks looking to win and keep consumers’ business, Menendez said.
But many issuers are falling short in effectively marketing debit to their customers, he said.
“Debit is the key to (bank) account relationships,” Menendez said, noting MasterCard research has found that, unlike with credit cards, most consumers concentrate their everyday spending on a single debit card.
Moreover, women drive some 60% of debit card spending globally. Yet very few banks target women in their debit card marketing, Menendez said.
“Women make purchasing decisions on key everyday purchases like groceries, clothing, gas and lunch,” he said. “Getting the right (debit) card to the right person drives purchase volume, and (banks) get better results if they communicate the benefits” of debit card use.
Asked about their debit cards’ benefits, some 40% of consumers “have no recollection,” Menendez noted.
Issuers could do more to tout additional benefits debit cards offer, including zero-liability provisions for lost and stolen debit cards. They also could offer enhancements, including beefed-up fraud protection, he said.
Banks also could drive more transaction volume by promoting debit card use in new categories, such as gasoline purchases, online shopping and bill payment, Menendez said.
“The holy grail” for increasing debit card purchase volume is increasing small-ticket purchases across a broad array of everyday expenditures, he said.
Another key for issuers looking to increase debit card use is to recognize that more consumers younger than 35 rely on cash or its equivalent to manage their finances, Menendez said.
“(Younger consumers) don’t like to balance checkbooks; they like to know exactly how much money they have right now,” he said.
Promoting debit card use for small transactions consumers might otherwise pay for with cash can drive up card purchase volume, Menendez added.
“Debit cards combine the convenience of credit cards and the comfort of cash,” he said. “While it may not be as profitable (as it once was), there are ways (for banks) to make money with debit and to use it as an entry point” for longstanding bank relationships.
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