Following the Durbin Amendment and the rule changes concerning debit interchange fees, some payment industry insiders predicted in lieu of fees that financial institutions would roll out innovative hybrid products that combined the functionality of a debit card while receiving lucrative credit card transaction fees.
For the most part, these predictions have failed to live up to their promise due to a range of reasons, from lack of consumer appeal to existing technologically superior products. Fifth Third Bank, however, claims to be the one exception to the rule and maintains that its Duo card has been a well-rounded success, according to an American Banker article.
While Fifth Third has yet to release much information about the performance of the Duo card, it suggests the card makes up about 25 percent of new monthly credit card statements.
From American Banker:
“The product resonates with customers who have an affinity for both (credit and debit transactions),” says Julie Joseforsky, Fifth Third’s head of debit, credit and prepaid cards.
The hybrid technology comes into play at the point of sale, according to the American Banker article. The Duo card allows the cardholder to choose at a POS terminal whether to conduct a debit or credit based transaction. While debit card fees are capped, Fifth Third benefits from the millions of retailers who do not have PIN keypads and thus process all transactions as credit card transactions which are not capped under the Durbin Amendment.
Fifth Third Bank, however, appears to be the only financial institution enjoying success as Citigroup just ended testing its hybrid card, according to the American Banker article. A similar scheme from TSYS, which enables customers to set what type of transactions are considered debit and what are considered credit, has failed to gain traction. Some of the failed progress with hybrid cards can be attributed to banks and other financial institutions minimizing interchange losses by removing debit reward programs and adding raising fees on checking accounts, the article says. Furthermore, financial institutions are consistently looking forward with investments in new payment technologies like mobile wallets and similar innovative solutions.
Moving forward, it would appear that hybrid debit and credit cards while great in theory, won’t work in reality despite the success reported by Fifth Third Bank. Providing payment products that customers really want as well (could involve making credit cards more attractive to consumers) as removing free checking and reward programs from debit cards is a more effective way of replacing lost interchange revenues from the Durbin Amendment.
Click here to read more from American Banker.