The Broken Link - Digital Transactions

MasterCard could take the risk of
offending banks because the network
changed from a bank-owned association
to a publicly traded stock company
in May 2006. Still, it’s a sensitive
issue, and in a prepared statement,
MasterCard’s Richard G. Lyons,
global product group executive, is
careful to note that
MasterCard isn’t trying
to disrupt traditional
bank-consumer
relationships.
“We supported
Capital One’s strategy
to introduce
its innovative debit
offering to compete
in an open-market
environment,” he
said. “MasterCard
understands that consumers
value choice
on how to pay for
their purchases and
how to access their
funds. The Capital
One debit product
serves as a companion to, rather
than a replacement of, the core banking
relationship, at the consumer’s
discretion.”
‘Not for Everyone’
HSBC, meanwhile, also is rolling out
a decoupled debit product with merchant
partners. The cards currently
are offered at the grocer Pathmark
Stores Inc. in a select number of locations
in New York. HSBC’s other
merchant partner is CVS Caremark
Corp., which has 6,245 pharmacies in
40 states and the District of Columbia.
The card debuted at 141 Indianapolisarea
CVS pharmacies last October.
Daniel Eckert, head of venture
acquisition and development at HSBC
card and retail services in Prospect
Heights, Ill., won’t say how many
cards HSBC, the nation’s No. 3 thirdparty
private-label card issuer, has
HSBC’s Eckert: “The interest
among potential card sponsors
has grown exponentially.”
issued or provide transaction volume.
“Decoupled debit is only five months
old as an industry. This is still very
much based on a test-and-learn feedback
loop,” he says. Even so, he adds,
“The interest among potential card
sponsors has grown exponentially. We
will have a lot of new [deal] announcements
in the first
quarter of 2008.”
For now, HSBC’s
decoupled debit card
runs on the Tempo
Payment Network,
which has about
200,000 acceptance
locations and uses
the ACH to debit
funds from cardholders’
DDAs. (In
2006, HSBC participated
in an $8.7 million
investment in
Tempo.) Eckert says
that may change for
future card sponsors,
indicating it might
be possible for merchants
to work with Visa, MasterCard,
or American Express Co., though he
provides no details.
For its part, Tempo Payments
shifted its strategy last summer.
After targeting retailers almost
exclusively since its Debitman days
as a low-cost, PIN-based alternative
to the major card brands, San Mateo,
Calif.-based Tempo now appeals to
financial institutions by offering
a payment platform that accesses
demand-deposit accounts. “We are
the only ones outside of Capital One
that has built this kind of platform,”
says Mike Grossman, Tempo’s chief
executive. Grossman adds that some
financial institutions have signed up
for the product, though he refuses to
name them.
“It’s clear that several big financial
institutions will join HSBC and
Capital One,” he says, noting that
some, but not all, banks see decoupled
debit cards as an opportunity.
He adds that highly motivated institutions
could implement a decoupled
debit program through Tempo in as
little as three to four months.
Speculating on which banks might
soon enter the decoupled debit arena,
Aite’s Bézard says, “It’s not a product
for everyone.” He explains that
decoupled debit makes sense for issuers
such as Capital One and HSBC,
neither of which have a lot of depositors.
“Initially, the most interested
(institutions) will be those without
traditional checking-account relationships,”
Bézard notes.
Looking ahead further, Bézard
thinks banks that specialize in cobranded
and private-label credit cards eventually
will embrace decoupled debit.
Prime candidates could be Citigroup
Inc., General Electric Co.’s GE Money
unit, Chase, and Wells Fargo & Co.
A ‘Powerful Package’
More new twists on debit are coming
from PayPal. About six years
ago, PayPal began offering its business
customers a debit card. Chase
issues the MasterCard-branded card.
Unlike the new decoupled debit
cards, the PayPal card draws funds
from the holder’s PayPal account,
not a checking account. From a regulatory
standpoint, the accounts are
considered stored-value accounts,
Bézard says.
PayPal recently began offering a
“plug in,” a type of software application
the user downloads to a Web
browser, that generates a one-time-use
MasterCard debit number to pay for an
online purchase. The plug-in enables
users to use PayPal even at sites that
don’t accept PayPal. Chris George,
senior director of financial products
at PayPal in San Jose, Calif., adds that
consumers have expressed interest in
a physical debit card product, an idea
PayPal is evaluating.
26 • digitaltransactions • February 2008