Mercator Perspectives

Thoughts on the Debit Market in 2013

In 2012, the debit industry in the U.S. began to recover from the turmoil resulting from the Durbin Amendment, but that doesn’t mean smooth sailing by any means.
Two thousand thirteen may be the year of living dangerously as issuers begin to get past the regulatory changes imposed on them and move into new product territories like mobile, EMV, P2P payments, and prepaid cards.

The competitive market is beginning to turn up the heat as new entrants muscle their way in to stake out their claim in an already crowded field. Looking into the year ahead, the following represents some of our list of debit-related items and issues we’ll be following: 

  • Our consumer survey data showed that more than twice as many consumers believed checking account fees were fair in 2012 than in 2011. This finding indicates consumers are making more fee-to-value comparisons, which will bolster the business case to provide enhanced services and could make free services appear less attractive. For example, one of the areas ripe for breaking open is the “great wall of offers” consumers need to navigate in order to make sense of their discount opportunities. Rewards and loyalty aggregation services, beyond simply providing a wallet to hold virtual rewards cards, is an area debit issuers could explore to extend their loyalty value proposition into consumers lives outside their financial institution. Other services might include:       
    Money management services, which include budget and spend information, debt management, best method of payment analysis, and goal savings.
    Account management services, which include online-reconcilement, e-receipts, and loyalty.
    Risk management services, which include proactive fraud alerts especially for card-not-present payments.
    Demographic-oriented services, which include product bundles designed to address the needs of specific consumer groups such as ethnic sectors and baby boomers.
  • The idea of separating the online and offline consumer payment experience should be completely debunked by the end of 2013 and issuers are considering how their payment brand fits into the omni-channel buying and payment experience. This year, a few of the big mobile wallet solutions finally entered the market including ISIS (open model), V.me (network model), and a re-engineered Google Wallet (device-dependent model). Do any of these pose a near-term threat to debit issuers? Mercator’s opinion is: Not in 2013. But issuers who are not participating in theses pilots might want to consider how their brand fits into these different business models and where they want to be positioned in a newly engineered value stream. 
  • Mercator Advisory Group believes that 2013 is the year that retail banks should move into the person-to-person (P2P) payments market as a new payment form and a means of expanding the value of mobile banking services into retail payments. Breaking P2P out of online banking bill-pay sites and onto consumer handsets will help move the market forward into accepting new payment form factors and help debit issuers defend against non-bank centric products. 

The most problematic competitors that retail institutions face are themselves and the legacy of vertical product business lines, lack of actionable data, and fear of breaking apart business models, which are already in decline. Even with the challenges inherent in a developed and highly competitive market, we find that consumers still consider their retail banks and credit unions trusted financial services partners. If that’s too optimistic for some (and many nontraditional services advocates certainly think it is), it should be a strong indicator that investments need to be made now that are critical to debit issuers interested in participating in the next generation of pay-now products, services, and technologies.

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